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1/7/2011

Banks lose key foreclosure ruling in top Massachusetts court

By Jonathan Stempel and Dena Aubin Jonathan Stempel And Dena Aubin Fri Jan 7, 4:58 pm ET

NEW YORK (Reuters) – In a decision that may slow foreclosures nationwide, Massachusetts’ highest court voided the seizure of two homes by Wells Fargo & Co and US Bancorp after the banks failed to show they held the mortgages at the time they foreclosed.

Bank shares fell, weighing on broader stock indexes, on fears the decision could threaten lenders’ ability to work through hundreds of thousands of pending foreclosures.

The Supreme Judicial Court of Massachusetts’ unanimous decision on Friday upheld a lower court ruling. It is among the earliest cases to address the validity of foreclosures done without proper documentation.

That issue, including the use of “robo-signers” who approved foreclosure documents without reviewing them, last year prompted an uproar that led lenders such as Bank of America Corp, JPMorgan Chase & Co and Ally Financial Inc to temporarily stop seizing homes.

“A ruling like this will slow down the foreclosure process” for lenders, said Marty Mosby, an analyst at Guggenheim Securities in Memphis, Tennessee. “They’re going to have to be really precise and get everything in order. It doesn’t leave a lot of wiggle room.”

Wells Fargo and U.S. Bancorp lacked authority to foreclose after having “failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph Gants wrote for the Massachusetts court.

In a concurring opinion, Justice Robert Cordy lambasted “the utter carelessness” that the banks demonstrated in documenting their right to own the properties.

Courts in other U.S. states are considering similar cases, and all 50 state attorneys general are examining whether lenders are forcing people out of their homes improperly.

Friday’s decision applies in Massachusetts, and need not be followed by federal judges or by courts in other states.

Nonetheless, “it will be certainly cited as persuasive authority by anybody in a similar scenario who’s trying to hold onto his home,” said Robert Nislick, a real estate lawyer at Marcus, Errico, Emmer & Brooks PC in Braintree, Massachusetts.

LEAVING PAPERWORK BEHIND

Analysts said the decision may also raise the specter that loans transferred improperly will need to be bought back.

“What they were doing was peddling these mortgages and leaving the paperwork behind,” said Michael Pill, a real estate partner at Green, Miles, Lipton & Fitz-Gibbon LLP in Northampton, Massachusetts who is not involved in the case.

The Massachusetts court rejected a request by the banks to apply the decision only in future cases, leaving homeowners already foreclosed upon without a remedy. Gants chided the banks for ignoring settled rules in their “rush” to sell mortgage-backed securities.

A spokeswoman for San Francisco-based Wells Fargo, Teri Schrettenbrunner, had no immediate comment on the decision.

U.S. Bancorp spokesman Steve Dale said the decision has no financial impact on the Minneapolis-based bank, which has “no responsibility” for the terms or means of transfer of mortgages used in the securitization trusts it oversees as trustee.

Martha Coakley, Massachusetts’ attorney general, praised Friday’s decision. “In their careless and hasty stampede to securitize loans, the banks moved at their own peril,” she said. “They should bear the brunt and the cost of the remedy.”

In Friday trading, Wells Fargo shares closed down 65 cents, or 2 percent lower, at $31.50, while U.S. Bancorp shares fell 20 cents, or 0.8 percent, at $26.09.

Bank of America stock fell 1.3 percent and JPMorgan fell 1.9 percent, and the KBW Bank Index fell 0.9 percent. Broader share indexes declined about 0.2 percent.

Bank shares recovered some losses after it was revealed that Maine’s highest court on Thursday allowed JPMorgan to conduct a foreclosure proceeding despite not having possessed the underlying mortgage until after that process began.

NOT IMMUNE

In the Massachusetts case, U.S. Bancorp and Wells Fargo had said they controlled through different trusts the respective mortgages of Antonio Ibanez and the married couple Mark and Tammy LaRace, who lost their homes to foreclosure in 2007.

The banks bought the Springfield, Massachusetts, homes in foreclosure, and sought court orders confirming they had title. A lower court judge ruled against them in March 2009.

“It is the first time the supreme court of a state has looked straight at securitization practices and told the industry, you are not immune from state statutes and homeowner protections,” Paul Collier, a lawyer for Ibanez, said in an interview.

Massachusetts is one of 27 U.S. states that do not require court approval to foreclose.

“I’m ecstatic,” Glenn Russell, a lawyer for the LaRaces, said in an interview. “The fact the decision applies retroactively could mean thousands of homeowners can seek recovery for homes wrongfully foreclosed upon.”

Russell said the LaRaces moved back to their home after the 2009 ruling, while Collier said Ibanez has not. “U.S. Bancorp will have to compensate him in exchange for the deed, or will have to walk away,” Collier said.

Analysts said the decision could make it harder to sell homes, and perhaps weigh on the nation’s economic recovery.

“The inventory on foreclosures will keep a lid on housing prices for some time,” said Blake Howells, head of equity research at Becker Capital Management in Portland, Oregon.

Gants did suggest in his opinion how banks might properly transfer mortgages via securitization trusts.

“The executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder,” Gants wrote. “However, there must be proof that the assignment was made by a party that itself held the mortgage.”

The American Securitization Forum, a trade group, in a statement said it “is confident securitization transfers are valid and fully enforceable.”

The cases are U.S. Bank N.A. v. Ibanez and Wells Fargo Bank NA v. LaRace et al, Supreme Judicial Court of Massachusetts, No. SJC-10694.

(Reporting by Jonathan Stempel and Dena Aubin; Additional reporting by Joe Rauch and Dan Wilchins; Editing by Matthew Lewis, Dave Zimmerman and Tim Dobbyn)

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Wednesday, Oct 20, 2010 13:15 ET

By Andrew Leonard

Keeping track of all the new developments in our brave new world of screwed-up foreclosures, misrepresented mortgage loans and toxic mortgage securities is a bewildering, Sisyphean task. Just this week, even as the Bank of America and GMAC both announced they were ending their self-imposed foreclosure moratoriums, the Obama administration’s Federal Fraud Enforcement Task Force launched a criminal investigation into whether financial firms broke the law by filing fraudulent documents as part of the foreclosure process, the sheriff of Cook County, Illinois (which includes Chicago) announced he would not enforce foreclosure evictions unless they were proven to be handled “properly and legally,” and a group of powerful bondholders announced its intentions has to sue the Bank of America in order to force it to repurchase bad mortgage loans. For the moment, that last news item, while not strictly a part of the foreclosure scandal per se, has seized the attention of the econoblogosphere to the exclusion of almost everything else. On Tuesday, PIMCO, the nation’s largest bond fund management company, the New York Federal Reserve Bank, and several other major Wall Street institutional investors sent a letter to the Bank of America requesting that it take back about $16.5 billion worth of bad mortgage loans packaged into 110 different mortgage-backed securities worth a total of $47 billion. Continue reading. The details of the showdown are exceedingly complex, to the point of absurdity. Here’s a taste, pointed out by Felix Salmon. One of the bondholders that signed the letter to the Bank of America is BlackRock, a prominent Wall Street money management firm. But… BofA owns 34 percent of BlackRock, which is a lead plaintiff in this case. (BlackRock manages the mortgage bonds which the Federal Reserve inherited as part of the Bear Stearns bailout.) BlackRock, in turn, is suing Countrywide (owned by BofA), the loan servicer which has clearly not been doing its job: Follow the bouncing ball. Countrywide, the nation’s biggest mortgage lender, made horrible loans and bundled them into toxic securities which it sold on to banks who then resold them to other investors. When the bust happened, both Countrywide and Bear Stearns were brought down. Bank of America bought Countrywide, and the Fed assumed responsibility of the worst of Bear-Stearns’ “toxic assets.” The Fed then hired BlackRock, part owned by Bank of America, to manage the securities mess. And now it appears that responsible fulfillment of that duty requires suing Bank of America, which bears the legal responsibility for Countrywide’s misdeeds. This is no ordinary legal squabble — this bears directly on the original sins that precipitated the financial crisis! Views differ on whether the effort to get BofA to repurchase Countrywide’s bad loans is a big financial deal, in and of itself. Felix Salmon says yes, Naked Capitalism’s Yves Smith says no, and you can find every shade of opinion in between if you spend any significant time looking. But the larger question hanging over the whole drama is whether this showdown is just the tip of the iceberg. We know, without a shadow of a doubt, that there was bad behavior at every step of the mortgage loan process — from the issuing of the original loan right on through, as we are seeing now, to the foreclosure process. But so far, outside of a handful of case, the forces of government have failed to bring the malefactors to justice. Quite the contrary — the worst offenders have been kept on life support rather than be put to death. The only force, in fact, that seems capable of bringing Wall Street to heel is Wall Street itself. And that’s the true significance of the lawyer letter sent to Bank of America. The bondholders are getting organized. The securities lawyers are being mobilized. Big money is demanding satisfaction from big money. If, in the process, some of Wall Street’s biggest banks face so much financial pain that their very existence is placed in jeopardy, it’s almost impossible to imagine that there will be political will for another bailout. Someone will take a hard fall. Many of us will no doubt cheer such a development, but we’d also do well to wonder what the ultimate consequences will be. As Wall Street starts to savage itself, who benefits?

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Home mortgage modification snags spark lawsuits

9/12/2010

By Stephanie Armour, USA TODAY

Anthony and April Soper’s financial troubles were only starting last October when they applied for a mortgage adjustment through the Obama administration’s ome Affordable Modification Program.Bank of America, their mortgage servicer, put them on a HAMP trial payment plan in December that cut their monthly payment by more than half from almost $4,000 to about $1,826.

They say they made their reduced monthly payments early and did everything else that was asked of them. But they didn’t get a permanent modification, and they say they don’t know why.

Instead, according to a lawsuit they’ve brought against Bank of America, they are now more than $8,000 behind on a mortgage that had been current 12 months ago. Each of their credit scores has dropped by nearly 100 points. And, they allege, Bank of America has threatened them with foreclosure.

“We jumped through all their hoops, and they did nothing but cause us heartache,” says April, 41. Whether the Lake Stevens, Wash., couple keep their home may hinge on the outcome of a legal strategy  that aims to join struggling homeowners with similar experiences in the HAMP program in a class-action lawsuit against the nation’s largest bank. On Sept. 30 in Nashville, a federal court hearing is scheduled to consider consolidating the Sopers’ case with more than a dozen others against Bank of America.

Similar lawsuits, also seeking class-action status, are pending against other major servicers such as JPMorgan Chase and Wells Fargo.

Anthony and April Soper of Lake Stevens, Wash., went on a trial plan that cut their monthly payment. But they didn’t get a permanent modification, and they say they don’t know why. Now, they’re suing Bank of America, their mortgage servicer. BofA is seeking a dismissal of the case.

AMP borrowers and HAMP’s modest results. Permanent modifications, which lower mortgage payments to 31% of a borrower’s pretax monthly income for five years, have been given to only about a third of the 1.3 million borrowers in trial plans since the program’s launch in April 2009.

Most of the lawsuits allege that the three- or four-month trial payment plans are contracts, and that Bank of America and other servicers broke them by not giving permanent modifications to homeowners who made their trial payments on time and provided the necessary documentation.

Servicers have asked courts to dismiss some of the cases, saying the trial plans are not contracts. Bank of America, which says it plans to seek dismissal of the Soper case, argues in a court filing in a similar case that it must consider borrowers for a HAMP modification, but that it has discretion in granting permanent modifications.

The bank also argues that homeowners have no case because courts have dismissed earlier HAMP-related lawsuits against mortgage servicers. Those cases claimed that in denying some homeowners modifications, the servicers had breached the contracts they made with the Treasury Department when they agreed to participate in HAMP. Courts said homeowners could not sue on those grounds because they weren’t parties to the contracts between the government and the servicers.

Lawyers for homeowners say they are now making a different legal argument: that Bank of America and others broke contracts made directly with homeowners.

“Borrowers have said we should be able to enforce the contract between Treasury and mortgage servicers, and many courts have rejected that. Our cases are the first filed that touch on a contract between servicers and borrowers,” says Kevin Costello, a lawyer with Roddy Klein & Ryan in Boston, which represents homeowners in cases against Bank of America, JPMorgan Chase and Wells Fargo.

“This litigation is spreading all across the country. People have been relying on a promise all along, and then they get a denial. Then they find themselves in that much worse of a hole,” he says.

Many homeowners could be affected: Nearly 620,000 trial modifications since spring 2009 have been canceled, according to an Aug. 20 Treasury report.

Chronicles of delays The lawsuits allege servicers are purposely denying permanent modifications and keeping loans in default so lenders can profit from heftier late fees and other charges. Court filings provide detailed chronologies of borrowers who allege that over periods of months, they repeatedly sent banks
requested documents that the banks said they didn’t receive, made inquiries that went unanswered, and received promises of help that were later contradicted or denied by other representatives.

“Bank of America has serially strung out, delayed, and otherwise hindered the modification processes that it contractually undertook to facilitate when it accepted” billions of dollars in government bailout funds in 2008, the Sopers’ complaint alleges.

By failing to live up to its obligations, according to the court filing, “Bank of America has left thousands of borrowers in a state of limbo — often worse off than they were before they sought a modification from Bank of America.”

The Sopers’ complaint alleges that Bank of America customer service representatives are instructed to mislead homeowners who call to inquire about loan modifications they’ve applied for. The complaint, citing information provided by unnamed former employees, says “representatives regularly inform homeowners that modification documents were not received on time or not received at all when, in fact, all documents have been received.”

When homeowners are denied permanent modifications, even those who were current before going on reduced-payment trials are considered in default, and servicers tell them they must immediately pay the difference between their trial payments and their higher former payments to avoid foreclosure, according to the Sopers’ complaint and others.

Borrowers’ mortgage debt in default rises further the longer they stay in trial plans.By making trial payments during and after the plan’s scheduled end, the Sopers’ complaint alleges, they “forgo other remedies that might be pursued to save their homes” such as restructuring their debt by filing for bankruptcy, or pursuing other ways to deal with their default, such as selling their homes.

Foreclosure proceedings have started against some borrowers while they were on trial plans, violating a Treasury directive, according to the lawsuits. Homeowners’ credit scores have also been damaged when servicers cancel trial plans, then report the amounts in default to credit bureaus.

Some court filings claim bank employees have demanded upfront fees to start consideration of a modification — in violation of HAMP rules — or told homeowners to stop paying mortgages in order to start a trial modification. The Sopers’ complaint alleges an unnamed homeowner was illegally asked to pay $1,400 upfront to Bank of America to be considered for a modification.
In another case, Alex Lam of New York alleges he was told he could only be considered for a HAMP trial modification if he stopped paying his mortgage for several months, according to a lawsuit filed in U.S. District Court in Brooklyn against JPMorgan. He skipped two months of payments in 2009 and says he was denied a permanent modification. JPMorgan declined to comment.

Homeowners’ lawyers say there is no effective way to appeal mortgage servicers’ decisions because Treasury has no ability to overturn a decision.

Watchdogs’ criticisms Government watchdogs, too, have raised similar criticisms about the HAMP program, as well as about servicers’ performance and Treasury’s oversight.

The Congressional Oversight Panel, which oversees the government fund that pays for HAMP, said in an April report it “is deeply concerned about the unacceptable quality of the denial and cancellation reasons, and strongly urges Treasury to take swift action.”

A Government Accountability Office report in June found servicers were erroneously denying permanent modifications to some homeowners because servicers were inaccurately applying a formula used to determine if the value of modifying the mortgage was greater than the proceeds from foreclosing. The number of homeowners who had been wrongly denied could “range from a handful to thousands.”

When errors have been found, Treasury says, it has made servicers go back and fix problems, and re-do their work as a check on their decision-making. It also says that 45% of those who started trials but were ineligible for permanent adjustments received an alternative modification through their servicer. Fewer than 2% have gone to foreclosure sale, according to Treasury.

Some homeowners say they’ve already lost their homes to foreclosure because a permanent HAMP modification was denied to them. Wells Fargo approved her for a trial HAMP modification, which lowered her payments starting in December 2009, according to court filings in U.S. District Court in Massachusetts. Voltaire is a co-
plaintiff in the case.

But after making regular payments, Voltaire was told in May that she was being taken out of the HAMP program and was $40,000 in default, the lawsuit alleges. After she protested, Wells Fargo agreed to reconsider her for a HAMP modification, according to the complaint, but in July, the bank took possession of the home.

“I was literally crying my eyes out,” Voltaire says. “I put everything I have into this house, into getting my kids out of the projects. That’s the part that really hurts. My kids could look at me like I failed.”

Wells Fargo agreed not to sell her house pending further court action. Voltaire is still staying there and making her trial plan payments.

In its motion to dismiss the lawsuit brought by Voltaire and others, Wells Fargo said the plaintiffs have not adequately shown that their trial modifications were contracts to enter into permanent modifications. It says homeowners benefited from being able to make reduced monthly payments while staying in their homes.

Treasury Department officials say homeowners in HAMP trial plans are not promised permanent modifications.

But the Soper lawsuit and others quote language from some trial plan agreements that states: “If I am in compliance with this trial period plan and my representations … continue to be true in all material respects, then the servicer will provide me with a Home Affordable Modification Agreement … that would amend and supplement the mortgage on the property, and the note secured by the mortgage.”

“They get a letter from the bank that says, ‘If I comply, I’m entitled to a HAMP modification.’ That’s a contract. The bank has not performed under the contract,” says Steve Berman, a lawyer with Hagens Berman Sobol and Shapiro in Seattle, who represents the Sopers and other homeowners in HAMP cases.

Evolving rules

The Obama administration’s rapid launch of HAMP and its changing guidelines since then may have contributed to the program’s administrative confusion. When HAMP began in 2009, servicers enrolled borrowers in trial modifications without verifying income or financial hardship. That brought immediate financial relief to more people, but ineligible homeowners were not weeded out until they completed trial plans. In June, the government began requiring participating servicers to verify applicants’ income and financial hardship before starting trials. Treasury says that has improved the rate of conversions to permanent modifications.

“The HAMP program was an unprecedented response to an enormous crisis in this country’s housing market. The administration needed to act quickly.” says Phyllis Caldwell, Treasury’s chief of the homeownership preservation office.Meanwhile, the number of homeowners claiming improper denials of HAMP modifications is climbing.One is Peter Salinas, 52, who struggled to pay his mortgage after the economy collapsed and his wife developed cancer. He appealed to his lender for help.

Salinas says he felt elated last year when he received a HAMP trial modification slashing $500 off his monthly payments. But later, he was told he made too much money to qualify for permanently reduced payments, he says. Wells Fargo threatened foreclosure if he didn’t pay $9,000, the difference

between his original mortgage and what he paid during the trial.His servicer, Wells Fargo, declined to comment on his situation. Salinas is working with Gulfcoast Legal Services, a not-for-profit civil legal aid office, that says it is preparing a lawsuit against the lender.

“I was convinced I was doing everything right,” says Salinas, a reporter for an automotive trade publication who lives near Bradenton, Fla. “I wasn’t trying to walk away from this mortgage. It’s just infuriating.”

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Here is the link to the US HUD government website.

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Court puts property seizure plan on ice
By Tara-Nicholle Nelson Wed, May 12 2010

Law of the Land

Tara-Nicholle Nelson
Inman News

In the case United States v. Queri, the federal government indicted Joseph Queri on charges of mail fraud, wire fraud, securities fraud and money laundering, among other things. The indictment included a forfeiture allegation, seeking to have Queri turn over to the government any property that could be traced to the alleged crimes.

If property directly linked to the crimes was unavailable, the indictment specifies that an apartment complex owned by an LLC in which Queri was an 80 percent member would be forfeited as a substitute.

The United States recorded a lis pendens — a notice of pending action — against the apartment complex, The Bradford, the day after the indictment came down. The lis pendens prevented the LLC from refinancing or renegotiating a mortgage loan secured by The Bradford, causing the mortgage to become past due.

Queri filed a motion for the U.S. District Court for the Northern District of New York to order the U.S. government to remove or cancel the lis pendens, so that the mortgage on the Bradford could be renegotiated.

Queri’s motion was granted, and the court ordered the government to remove the lis pendens.

In argument on the motion, the government acknowledged “that federal law does not expressly authorize the filing of a notice of lis pendens on potential substitute property.” Citing United States v. Gotti, 155 F.3d 144, 149 (2d Cir. 1998), the court explained that the law authorizes the government to place a pretrial restraint to ensure that property directly connected to the charged offenses is preserved, but may not place pretrial restraints on substitute property.

In Gotti, the pretrial restraint the government was not allowed to place on substitute property was a restraining order prohibiting the sale of the property; in this case, the restraint the government sought was a lis pendens.

Following the rationale of a similar opinion issued by the Southern District of New York Court, the court ruled that there was virtually no difference between a lis pendens and a restraining order against the sale of the property in this case, because a lis pendens recorded by the U.S. government would in effect prevent the property from being transferred, realistically speaking.

The court rejected the government’s argument that the lis pendens on Queri’s substitute property was authorized by sections 6501 and 1343 of the New York Civil Practice Law and Rules, both of which “provide that such notices may only be filed in any action ‘in which the judgment demanded would affect the title to, or the possession, use or enjoyment of real property …’ ” The judgment sought by the indictment against Queri, explained the court, is Queri’s conviction — which affects only the title and possession of property connected to that offense, not substitute property.

Additionally, the government neither alleged nor provided evidence that Queri’s interest in The Bradford was acquired using assets he obtained by committing the crimes with which he was charged, as required for The Bradford to be forfeited as substitute property.

Accordingly, the court ruled, until the government satisfies the elements required to establish its right to forfeit Queri’s substitute property, the government is prohibited from recording a lis pendens against The Bradford. Queri’s motion was granted and the lis pendens was ordered to be lifted.

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