America Saves Week (February 20–27) is a chance for organizations and professionals to make a concerted effort to help individuals take positive steps to reach their savings goals. Visit http://www.americasavesweek.org/ to learn more, including ways to get involved.
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Monday, February 14, 2011
Obama's Fannie & Freddie Plan
Obama's Fannie, Freddie plan may boost mortgage rates
Washington Post
By Zachary A. Goldfarb
Friday, February 11, 2011; 8:59 AM
The Obama administration proposed raising fees for borrowers and requiring large down payments for home loans as part of a long-term effort to reduce the government's outsized footprint in the housing market, but warned that these moves could increase mortgage rates and potentially reduce the availability of the 30-year fixed rate mortgage, a mainstay of American housing for decades.
In a long-awaited white paper, the administration said that it intends to wind down Fannie Mae and Freddie Mac, which together with the Federal Housing Administration provide more than 90 percent of housing finance, but said the process could take five or more years.
It discussed three options for replacing them, including a new government agency that would insure mortgages all the time, a new agency that would only step in during times of market crisis, and then a third option that does not provide any government backing for home loans beyond the FHA.
The administration warned that this no-government option "has particularly acute costs in its potential impact on access to credit for many Americans." The white paper also warned that this option could have the greatest impact on boosting mortgage rates and would make it difficult for community banks to compete in the housing market.
But it said the other options continue to put at risk taxpayers for bailing out the mortgage market in big declines.
Regardless of this longer-term overhaul, the administration suggested a range of new measures to make taking a government-backed mortgage more expensive and thereby making it more competitive for private sector firms to compete in offering mortgages.
These include reducing the size of mortgages Fannie and Freddie can purchase, from $729,750 now to $625,500 by this fall. It also includes phasing a 10 percent down payment requirement for the companies. Finally, it includes raising fees the companies charge to insure loans.
The administration also suggested scaling back FHA, which caters to first-time homebuyers with low down-payment options. It said it wants to reduce the size of loans that FHA can provide, increase fees by a quarter percentage point, and potentially raise the down payment requirement from 3.5 percent now to 5 percent in the future.
The report also emphasized the importance of rental housing for low and moderate-income communities.
Senior administration officials said they would take gradual steps, to avoid harming the already struggling housing market. But they said this plan laid the groundwork for the future of housing in America.
"This is a plan for fundamental reform - to wind down the [Fannie and Freddie], strengthen consumer protection, and preserve access to affordable housing for people who need it," Treasury Secretary Timothy F. Geithner said. "We are going to start the process of reform now, but we are going to do it responsibility and carefully so that we support the recovery and the process of repair of the housing market."
In an interview with CNBC immediately following the release of the report, Geithner said that it is "important Congress legislates this over the next two years."
Mark Zandi, chief economist for Moodys.com, told CNBC that he felt the Obama administration had "laid out a prudent, appropriate plan."
"At the end of the day, though, the government is going to have to play some role in a catastrophic backstop," Zandi added.
Bipartisan support for scrapping Fannie, Freddie draws criticism
By Zachary A. Goldfarb
Washington Post Staff Writer
Wednesday, February 9, 2011; 10:55 PM
To many Republicans and the Obama administration, Fannie Mae and Freddie Mac, the government's mortgage giants, are ill. But rather than healing them, both sides agree that the companies should be left to die and that their support for the housing market should wither away.
Some influential interest groups are taking issue with that surprising bipartisan consensus.
They include small banks, real estate agents and consumer groups, who all say that Fannie and Freddie, or something similar, are crucial for sustaining the struggling housing market.
And ahead of the administration's scheduled release Friday of a white paper on overhauling the nation's mortgage system, some economists are also saying that shrinking the government's role too much will make housing far more costly for Americans.
"These groups have considerable political clout and will make it difficult to get Congress to act on housing finance reform," said Jaret Seiberg, an analyst with MF Global. "Legislation to cut back the government's role in housing finance will result in higher mortgage rates and downward pressure on home values. That is a tough vote for many lawmakers, regardless of their party affiliation."
Some business groups, such as small banks and credit unions, are worried that the demise of Fannie and Freddie would allow large financial firms to dominate the mortgage market. Realtors and home builders are reluctant to part with the federal subsidy for housing provided by Fannie and Freddie. Consumer groups are wary of eliminating the firms because of the role they play in helping lower- and moderate-income homebuyers get access to mortgages.
Seiberg said that this opposition could lead the administration to retain the two companies and reform them.
"We continue to believe the administration will restructure its investments in the enterprises to stabilize them to give Congress even more time to act," he said in a research report Wednesday. "A more stable Fannie and Freddie reduces the need for legislation, which makes it even harder to get lawmakers to act."
Divergent approaches
Although Republicans and the administration agree that Fannie and Freddie have got to go, that's where the agreement ends.
Congressional Republicans want to accelerate the mortgage giants' demise, reflecting their view that Fannie and Freddie are government-created monstrosities whose victims have been taxpayers. The seizure of the companies has cost the Treasury more than $130 billion. The Obama team wants to take a gradual approach.
And on the question of what should replace them, the GOP has outlined a clear, if controversial, vision: nothing. The administration's long-delayed white paper, by contrast, will not present a single vision for reform, but three different options.
This approach to overhauling Fannie and Freddie could make it even less likely that Congress will devise a new system for housing finance this year.
Federally backed Fannie and Freddie buy mortgage loans and guarantee them against default. This government guarantee has lent certainty and stability to the housing market, keeping funding available and interest rates low, at a time of severe stress. Fannie and Freddie, combined with the Federal Housing Administration, which supports low down-payment loans, have been behind more than 90 percent of new home loans in recent years.
Mark Zandi, an economist and adviser to both Republicans and Democrats, estimated this week that mortgage rates would be one percentage point higher and that home prices would be 10 percent lower if Fannie and Freddie were eliminated and nothing replaced them.
One of the options in the administration's white paper matches the Republican proposal that nothing replace the companies. The other two options involve a new government agency that would provide mortgage insurance for high-quality loans all the time - and one that would step in during times of crisis.
The administration will propose baby steps toward reducing government support, such as raising fees that Fannie and Freddie charge lenders and borrowers for the government guarantee as well reducing the size of mortgages they can insure, from $729,750 to $625,500.
The administration is also likely to champion steps that it has taken and regulators can take to overhaul the housing finance system.
GOP prodding
Meanwhile, Republicans, particularly in the House, say they will be pushing the administration to do more, faster.
"It's unfortunate that my colleagues across the aisle resisted any attempt last Congress to address the most expensive component of the federal government's intervention during the financial crisis," Rep. Scott Garrett (R-N.J.), chairman of the House panel overseeing housing finance, said Wednesday at hearing on their future.
But Rep. Barney Frank (D-Mass.), the top Democrat on the House Financial Services Committee, said that Republicans are likely to be more circumspect now that they are in charge and that any precipitous move to disrupt the housing market could cost homeowners in their districts.
The Republicans "seemed to know exactly what they wanted to do when they were in the minority," he said. "I think what they're finding is it's a little more complicated than they thought."
Washington Post
By Zachary A. Goldfarb
Friday, February 11, 2011; 8:59 AM
The Obama administration proposed raising fees for borrowers and requiring large down payments for home loans as part of a long-term effort to reduce the government's outsized footprint in the housing market, but warned that these moves could increase mortgage rates and potentially reduce the availability of the 30-year fixed rate mortgage, a mainstay of American housing for decades.
In a long-awaited white paper, the administration said that it intends to wind down Fannie Mae and Freddie Mac, which together with the Federal Housing Administration provide more than 90 percent of housing finance, but said the process could take five or more years.
It discussed three options for replacing them, including a new government agency that would insure mortgages all the time, a new agency that would only step in during times of market crisis, and then a third option that does not provide any government backing for home loans beyond the FHA.
The administration warned that this no-government option "has particularly acute costs in its potential impact on access to credit for many Americans." The white paper also warned that this option could have the greatest impact on boosting mortgage rates and would make it difficult for community banks to compete in the housing market.
But it said the other options continue to put at risk taxpayers for bailing out the mortgage market in big declines.
Regardless of this longer-term overhaul, the administration suggested a range of new measures to make taking a government-backed mortgage more expensive and thereby making it more competitive for private sector firms to compete in offering mortgages.
These include reducing the size of mortgages Fannie and Freddie can purchase, from $729,750 now to $625,500 by this fall. It also includes phasing a 10 percent down payment requirement for the companies. Finally, it includes raising fees the companies charge to insure loans.
The administration also suggested scaling back FHA, which caters to first-time homebuyers with low down-payment options. It said it wants to reduce the size of loans that FHA can provide, increase fees by a quarter percentage point, and potentially raise the down payment requirement from 3.5 percent now to 5 percent in the future.
The report also emphasized the importance of rental housing for low and moderate-income communities.
Senior administration officials said they would take gradual steps, to avoid harming the already struggling housing market. But they said this plan laid the groundwork for the future of housing in America.
"This is a plan for fundamental reform - to wind down the [Fannie and Freddie], strengthen consumer protection, and preserve access to affordable housing for people who need it," Treasury Secretary Timothy F. Geithner said. "We are going to start the process of reform now, but we are going to do it responsibility and carefully so that we support the recovery and the process of repair of the housing market."
In an interview with CNBC immediately following the release of the report, Geithner said that it is "important Congress legislates this over the next two years."
Mark Zandi, chief economist for Moodys.com, told CNBC that he felt the Obama administration had "laid out a prudent, appropriate plan."
"At the end of the day, though, the government is going to have to play some role in a catastrophic backstop," Zandi added.
Bipartisan support for scrapping Fannie, Freddie draws criticism
By Zachary A. Goldfarb
Washington Post Staff Writer
Wednesday, February 9, 2011; 10:55 PM
To many Republicans and the Obama administration, Fannie Mae and Freddie Mac, the government's mortgage giants, are ill. But rather than healing them, both sides agree that the companies should be left to die and that their support for the housing market should wither away.
Some influential interest groups are taking issue with that surprising bipartisan consensus.
They include small banks, real estate agents and consumer groups, who all say that Fannie and Freddie, or something similar, are crucial for sustaining the struggling housing market.
And ahead of the administration's scheduled release Friday of a white paper on overhauling the nation's mortgage system, some economists are also saying that shrinking the government's role too much will make housing far more costly for Americans.
"These groups have considerable political clout and will make it difficult to get Congress to act on housing finance reform," said Jaret Seiberg, an analyst with MF Global. "Legislation to cut back the government's role in housing finance will result in higher mortgage rates and downward pressure on home values. That is a tough vote for many lawmakers, regardless of their party affiliation."
Some business groups, such as small banks and credit unions, are worried that the demise of Fannie and Freddie would allow large financial firms to dominate the mortgage market. Realtors and home builders are reluctant to part with the federal subsidy for housing provided by Fannie and Freddie. Consumer groups are wary of eliminating the firms because of the role they play in helping lower- and moderate-income homebuyers get access to mortgages.
Seiberg said that this opposition could lead the administration to retain the two companies and reform them.
"We continue to believe the administration will restructure its investments in the enterprises to stabilize them to give Congress even more time to act," he said in a research report Wednesday. "A more stable Fannie and Freddie reduces the need for legislation, which makes it even harder to get lawmakers to act."
Divergent approaches
Although Republicans and the administration agree that Fannie and Freddie have got to go, that's where the agreement ends.
Congressional Republicans want to accelerate the mortgage giants' demise, reflecting their view that Fannie and Freddie are government-created monstrosities whose victims have been taxpayers. The seizure of the companies has cost the Treasury more than $130 billion. The Obama team wants to take a gradual approach.
And on the question of what should replace them, the GOP has outlined a clear, if controversial, vision: nothing. The administration's long-delayed white paper, by contrast, will not present a single vision for reform, but three different options.
This approach to overhauling Fannie and Freddie could make it even less likely that Congress will devise a new system for housing finance this year.
Federally backed Fannie and Freddie buy mortgage loans and guarantee them against default. This government guarantee has lent certainty and stability to the housing market, keeping funding available and interest rates low, at a time of severe stress. Fannie and Freddie, combined with the Federal Housing Administration, which supports low down-payment loans, have been behind more than 90 percent of new home loans in recent years.
Mark Zandi, an economist and adviser to both Republicans and Democrats, estimated this week that mortgage rates would be one percentage point higher and that home prices would be 10 percent lower if Fannie and Freddie were eliminated and nothing replaced them.
One of the options in the administration's white paper matches the Republican proposal that nothing replace the companies. The other two options involve a new government agency that would provide mortgage insurance for high-quality loans all the time - and one that would step in during times of crisis.
The administration will propose baby steps toward reducing government support, such as raising fees that Fannie and Freddie charge lenders and borrowers for the government guarantee as well reducing the size of mortgages they can insure, from $729,750 to $625,500.
The administration is also likely to champion steps that it has taken and regulators can take to overhaul the housing finance system.
GOP prodding
Meanwhile, Republicans, particularly in the House, say they will be pushing the administration to do more, faster.
"It's unfortunate that my colleagues across the aisle resisted any attempt last Congress to address the most expensive component of the federal government's intervention during the financial crisis," Rep. Scott Garrett (R-N.J.), chairman of the House panel overseeing housing finance, said Wednesday at hearing on their future.
But Rep. Barney Frank (D-Mass.), the top Democrat on the House Financial Services Committee, said that Republicans are likely to be more circumspect now that they are in charge and that any precipitous move to disrupt the housing market could cost homeowners in their districts.
The Republicans "seemed to know exactly what they wanted to do when they were in the minority," he said. "I think what they're finding is it's a little more complicated than they thought."
Hearing Set in Blockbuster Chap. 7 Motion
"A New York judge will hold a hearing on Feb. 24 to address a request by a Blockbuster Inc. creditor to move the Dallas movie and game rental chain's bankruptcy into Chapter 7 liquidation."
http://www.bizjournals.com/houston/news/2011/02/09/hearing-set-in-blockbuster-chap-7.html
http://www.bizjournals.com/houston/news/2011/02/09/hearing-set-in-blockbuster-chap-7.html
8th Cir Affirms FCRA Furnisher Liability Ruling in Favor of Mortgage Servicer
The United States Court of Appeals for the Eighth Circuit recently affirmed the lower court’s grant of summary judgment in favor of defendant mortgage servicer as to the borrower’s claim under the federal Fair Credit Reporting Act (“FCRA”), 15 U.S.C. §§ 181o, 1601s-2(b).
Defendant EMC Mortgage Company (“EMC”) credited Plaintiff-borrower’s (“Plaintiff”) loan account with a payment received in December 2006, but presented a substitute check to Plaintiff’s bank in March 2007 due to the original check having been lost or destroyed. However, by March of 2007, Plaintiff had closed that bank account and the payment was dishonored by Plaintiff’s bank. EMC “un-credited” Plaintiff’s account for December and, although Plaintiff had otherwise kept current with his payments, EMC notified the credit reporting agencies (“CRAs”) that Plaintiff’s account was thirty days past due. Plaintiff then made an “extra payment” to bring his EMC account current, but by that time supposedly lost favorable financing for a real estate purchase because of the adverse credit reports.
Plaintiff brought suit against EMC alleging that EMC violated the federal Fair Credit Reporting Act (“FCRA”), 15 U.S.C. §§ 1681o, 1681s-2(b), by “furnish[ing] inaccurate information.” After the case was removed to federal court, the district court granted of summary judgment in favor of EMC as to the FCRA claim because the Plaintiff’s “account was more than thirty days past due as a matter of law when EMC reported that account status in April and May 2007.” The Eighth Circuit affirmed.
On appeal, Plaintiff argued “that summary judgment was inappropriate because the district court noted that an ‘Experian entry is inaccurate insofar as it states that Plaintiff’s account was delinquent in May and June (as opposed to April and May),’ and EMC failed to investigate and correct this inaccuracy.” The Plaintiff’s argument was based primarily upon a document entitled “Your Credit Report” dated June 25, 2009, which is a summary of credit reports from the CRAs.
The Eighth Circuit disagreed with the Plaintiff, holding that “the ‘Your Credit Report’ document failed to raise a genuine issue of material fact whether EMC violated 15 U.S.C. §§ 1681o and 1681s-2(b) by failing to investigate and correct an immaterial discrepancy as to which two months in 2007 Anderson’s account was thirty days past due.” The Court reasoned that “a furnisher’s obligation to conduct a reasonable investigation under § 1681s-2(b) arises when it receives a notice of dispute from a CRA, and it need investigate only ‘what it learned about the nature of the dispute from the description in the CRA’s notice of dispute.’”
In this case, dispute notifications from the “CRAs notified EMC that its reporting of the account as past-due for two months had been challenged. EMC investigated, correctly determined that the reported account status was accurate, and verified that information to the CRAs.” EMC’s “duties as a furnisher of information under the FCRA required no more.” Accordingly, the Court affirmed the judgment of the lower court.
The Court also noted that “the duties of EMC as a furnisher of credit information under 15 U.S.C. § 1681s-2(b) are triggered by notice that its information is being disputed from a CRA, not from the consumer. See § 1681i(a)(2).” The Plaintiff’s “complaint alleging that EMC reported inaccurate data failed to allege a triggering CRA notice and therefore failed to state a claim against EMC under the FCRA.” However, “rather than challenge the sufficiency of Plaintiff’s Complaint, EMC moved for summary judgment after the close of discovery.”
Defendant EMC Mortgage Company (“EMC”) credited Plaintiff-borrower’s (“Plaintiff”) loan account with a payment received in December 2006, but presented a substitute check to Plaintiff’s bank in March 2007 due to the original check having been lost or destroyed. However, by March of 2007, Plaintiff had closed that bank account and the payment was dishonored by Plaintiff’s bank. EMC “un-credited” Plaintiff’s account for December and, although Plaintiff had otherwise kept current with his payments, EMC notified the credit reporting agencies (“CRAs”) that Plaintiff’s account was thirty days past due. Plaintiff then made an “extra payment” to bring his EMC account current, but by that time supposedly lost favorable financing for a real estate purchase because of the adverse credit reports.
Plaintiff brought suit against EMC alleging that EMC violated the federal Fair Credit Reporting Act (“FCRA”), 15 U.S.C. §§ 1681o, 1681s-2(b), by “furnish[ing] inaccurate information.” After the case was removed to federal court, the district court granted of summary judgment in favor of EMC as to the FCRA claim because the Plaintiff’s “account was more than thirty days past due as a matter of law when EMC reported that account status in April and May 2007.” The Eighth Circuit affirmed.
On appeal, Plaintiff argued “that summary judgment was inappropriate because the district court noted that an ‘Experian entry is inaccurate insofar as it states that Plaintiff’s account was delinquent in May and June (as opposed to April and May),’ and EMC failed to investigate and correct this inaccuracy.” The Plaintiff’s argument was based primarily upon a document entitled “Your Credit Report” dated June 25, 2009, which is a summary of credit reports from the CRAs.
The Eighth Circuit disagreed with the Plaintiff, holding that “the ‘Your Credit Report’ document failed to raise a genuine issue of material fact whether EMC violated 15 U.S.C. §§ 1681o and 1681s-2(b) by failing to investigate and correct an immaterial discrepancy as to which two months in 2007 Anderson’s account was thirty days past due.” The Court reasoned that “a furnisher’s obligation to conduct a reasonable investigation under § 1681s-2(b) arises when it receives a notice of dispute from a CRA, and it need investigate only ‘what it learned about the nature of the dispute from the description in the CRA’s notice of dispute.’”
In this case, dispute notifications from the “CRAs notified EMC that its reporting of the account as past-due for two months had been challenged. EMC investigated, correctly determined that the reported account status was accurate, and verified that information to the CRAs.” EMC’s “duties as a furnisher of information under the FCRA required no more.” Accordingly, the Court affirmed the judgment of the lower court.
The Court also noted that “the duties of EMC as a furnisher of credit information under 15 U.S.C. § 1681s-2(b) are triggered by notice that its information is being disputed from a CRA, not from the consumer. See § 1681i(a)(2).” The Plaintiff’s “complaint alleging that EMC reported inaccurate data failed to allege a triggering CRA notice and therefore failed to state a claim against EMC under the FCRA.” However, “rather than challenge the sufficiency of Plaintiff’s Complaint, EMC moved for summary judgment after the close of discovery.”
Ill App Ct Answers Certified Questions re: Assignments of Consumer Debts
The Illinois Appellate Court, First District, recently held that a collection agency has standing to sue, where the agency pleads and proves that it has legal title to accounts receivable assigned "for collection purposes only." The Court also held that an agency may establish such an assignment through multiple incorporated documents attached as exhibits to the complaint. However, the documents provided must include contracts of assignment or incorporate such contracts by reference; the agency may not rely merely on affidavits to establish an assignment. Further, the documents provided must also identify the accounts transferred, the consideration paid, and the effective date of the transfer of the accounts.
A copy of the opinion is available online at: http://www.state.il.us/court/Opinions/AppellateCourt/2011/1stDistrict/February/1100855.pdf
Defendant borrower defaulted on a Citibank credit card account. Citibank then sold the account to Unifund Portfolio A, L.L.C. On the same day, Portfolio A sold the account to Cliffs Portfolio Acquisition I. Cliffs Portfolio then assigned its legal interest in the account to Palisades Collection, L.L.C., to enable Palisades to collect on the account, but purported to retain an equitable interest in the debt itself. Finally, Palisades then assigned its interest in the account to the collection agency plaintiff.
In support of its complaint, the collection agency plaintiff provided an affidavit of an employee who had reviewed plaintiff’s internal records, as well as various contracts of sale and assignment for defendant's account, along with other incorporated agreements. The defendant debtor moved to dismiss, arguing that the purported assignments of his account were inadequate under section 8b of the Collection Agency Act because required information, such as the account information, the consideration paid, and the effective date of assignment were scattered among plaintiff’s exhibits, rather than contained in a single document.
The Appellate Court first considered whether an assignee of a debt has standing to sue where legal title was assigned “for collection purposes only.” The Court examined Section 2-403 of the Illinois Code of Civil Procedure, which states “[t]he assignee and owner of a non-negotiable chose in action may sue thereon in his or her own name.” Because a chose in action is a “proprietary right in personam, such as a debt owed by another person,” the Court ruled, “[c]hoses in action like plaintiff's debt in this case are assignable.”
The Court further noted that “[a]lthough Illinois cases have not explicitly addressed this issue, long-standing modern practice in other jurisdictions allows the owner of a debt to transfer the entire chose in action outright to a third party, retaining no ownership interest in it, or to transfer only the owner's legal interest in the action, retaining an equitable or beneficial interest.”
The Court also examined Section 8b of the Illinois Collection Agency Act, which states that “[a]n account may be assigned to a collection agency…to enable collection of the account in the agency's name as assignee for the creditor.” Thus, the Court ruled, “[w]hen the two statutes are read together, it is apparent that an assignee for collection has standing to bring suit in its own name in order to collect a debt” and that “section 2-403 encompasses not only assignees who take complete ownership of an account but also those who merely take legal title for the purpose of collecting the debt while the creditor retains the beneficial interest and equitable title.”
The Court then considered the requirements for pleading assignment of a debt under Section 8b of the Collection Agency Act. Observing that a collection agency can bring suit to collect on a debtor's account only when “[t]he assignment is manifested by a written agreement, separate from and in addition to any document intended for the purpose of listing a debt with a collection agency,” the Court considered whether an assignment must be manifested by only a single document or must consist of multiple incorporated documents.
In analyzing this question, the Court noted that “the key phrases in Section 8b are ‘assignment manifested by a written agreement’ and ‘document manifesting the assignment’” and thus that “assignment of the account must be manifested by a legal document in the formal sense, that is, by a written contract of assignment… that is completely separate from any contract to list the account with the collection agency.”
Further because “[i]t is a fundamental principal of contract law that ‘an instrument may incorporate all or part of another instrument by reference’,” then “it follows that the terms of the assignment may be found in either the contract of assignment itself or in any other document incorporated by reference.” Thus, the Court ruled, “assignment under Section 8b can be established through multiple documents that are incorporated by reference into the contract of assignment.”
Having concluded that an assignment can be manifested by multiple incorporated documents, the Court then considered the content required for those documents to satisfy Section 8b, which “requires that the contract of assignment ‘specifically state and include’ both the effective date of the assignment and the consideration given for the assignment.” Further, the Court ruled, “[i]mplicit in the statute is a third requirement that the contract of assignment specifically state the relevant identifying information for the account that is being assigned.”
Although the plaintiff collection agency provided “three broad categories” of documents in support of their complaint, including “affidavits, contracts of assignment, and incorporated documents,” the Court ruled that “[p]laintiff's use of the affidavit in support of its claim…is problematic,” because the “plain language of [Section 8b] provides only a single method of proving the existence of an assignment, and this method does not include affidavits.” The Court further noted that “[l]imiting the methods of proof of an assignment to only written contracts furthers…legislative policy because it requires collection agencies to clearly demonstrate that they and they alone are the proper parties for a debtor to be dealing with regarding their debt.”
Therefore, the Court ruled, bare “affidavits…cannot be used by a collection agency to prove the assignment and state a claim to a debtor's account.”
The Court then examined the contracts of assignment and incorporated documents provided in support of the plaintiff’s collection agency’s complaint. Although it declined to rule on their sufficiency, noting that “it is for the circuit court to determine whether all of the documents that plaintiff has attached to its complaint in this case satisfy the requirements of section 8b,“ the Court specifically noted that “Section 8b requires each contract of assignment in the chain of title for the account, beginning with the original creditor and ending with the plaintiff, to specifically state and include the effective date of assignment, the consideration paid, and the identifying information for the account transferred.”
A copy of the opinion is available online at: http://www.state.il.us/court/Opinions/AppellateCourt/2011/1stDistrict/February/1100855.pdf
Defendant borrower defaulted on a Citibank credit card account. Citibank then sold the account to Unifund Portfolio A, L.L.C. On the same day, Portfolio A sold the account to Cliffs Portfolio Acquisition I. Cliffs Portfolio then assigned its legal interest in the account to Palisades Collection, L.L.C., to enable Palisades to collect on the account, but purported to retain an equitable interest in the debt itself. Finally, Palisades then assigned its interest in the account to the collection agency plaintiff.
In support of its complaint, the collection agency plaintiff provided an affidavit of an employee who had reviewed plaintiff’s internal records, as well as various contracts of sale and assignment for defendant's account, along with other incorporated agreements. The defendant debtor moved to dismiss, arguing that the purported assignments of his account were inadequate under section 8b of the Collection Agency Act because required information, such as the account information, the consideration paid, and the effective date of assignment were scattered among plaintiff’s exhibits, rather than contained in a single document.
The Appellate Court first considered whether an assignee of a debt has standing to sue where legal title was assigned “for collection purposes only.” The Court examined Section 2-403 of the Illinois Code of Civil Procedure, which states “[t]he assignee and owner of a non-negotiable chose in action may sue thereon in his or her own name.” Because a chose in action is a “proprietary right in personam, such as a debt owed by another person,” the Court ruled, “[c]hoses in action like plaintiff's debt in this case are assignable.”
The Court further noted that “[a]lthough Illinois cases have not explicitly addressed this issue, long-standing modern practice in other jurisdictions allows the owner of a debt to transfer the entire chose in action outright to a third party, retaining no ownership interest in it, or to transfer only the owner's legal interest in the action, retaining an equitable or beneficial interest.”
The Court also examined Section 8b of the Illinois Collection Agency Act, which states that “[a]n account may be assigned to a collection agency…to enable collection of the account in the agency's name as assignee for the creditor.” Thus, the Court ruled, “[w]hen the two statutes are read together, it is apparent that an assignee for collection has standing to bring suit in its own name in order to collect a debt” and that “section 2-403 encompasses not only assignees who take complete ownership of an account but also those who merely take legal title for the purpose of collecting the debt while the creditor retains the beneficial interest and equitable title.”
The Court then considered the requirements for pleading assignment of a debt under Section 8b of the Collection Agency Act. Observing that a collection agency can bring suit to collect on a debtor's account only when “[t]he assignment is manifested by a written agreement, separate from and in addition to any document intended for the purpose of listing a debt with a collection agency,” the Court considered whether an assignment must be manifested by only a single document or must consist of multiple incorporated documents.
In analyzing this question, the Court noted that “the key phrases in Section 8b are ‘assignment manifested by a written agreement’ and ‘document manifesting the assignment’” and thus that “assignment of the account must be manifested by a legal document in the formal sense, that is, by a written contract of assignment… that is completely separate from any contract to list the account with the collection agency.”
Further because “[i]t is a fundamental principal of contract law that ‘an instrument may incorporate all or part of another instrument by reference’,” then “it follows that the terms of the assignment may be found in either the contract of assignment itself or in any other document incorporated by reference.” Thus, the Court ruled, “assignment under Section 8b can be established through multiple documents that are incorporated by reference into the contract of assignment.”
Having concluded that an assignment can be manifested by multiple incorporated documents, the Court then considered the content required for those documents to satisfy Section 8b, which “requires that the contract of assignment ‘specifically state and include’ both the effective date of the assignment and the consideration given for the assignment.” Further, the Court ruled, “[i]mplicit in the statute is a third requirement that the contract of assignment specifically state the relevant identifying information for the account that is being assigned.”
Although the plaintiff collection agency provided “three broad categories” of documents in support of their complaint, including “affidavits, contracts of assignment, and incorporated documents,” the Court ruled that “[p]laintiff's use of the affidavit in support of its claim…is problematic,” because the “plain language of [Section 8b] provides only a single method of proving the existence of an assignment, and this method does not include affidavits.” The Court further noted that “[l]imiting the methods of proof of an assignment to only written contracts furthers…legislative policy because it requires collection agencies to clearly demonstrate that they and they alone are the proper parties for a debtor to be dealing with regarding their debt.”
Therefore, the Court ruled, bare “affidavits…cannot be used by a collection agency to prove the assignment and state a claim to a debtor's account.”
The Court then examined the contracts of assignment and incorporated documents provided in support of the plaintiff’s collection agency’s complaint. Although it declined to rule on their sufficiency, noting that “it is for the circuit court to determine whether all of the documents that plaintiff has attached to its complaint in this case satisfy the requirements of section 8b,“ the Court specifically noted that “Section 8b requires each contract of assignment in the chain of title for the account, beginning with the original creditor and ending with the plaintiff, to specifically state and include the effective date of assignment, the consideration paid, and the identifying information for the account transferred.”
Bankruptcy Vlo Case Update
7th Circuit: Busson-Sokolik v. Milwaukee School of Engineering (In re Busson-Sokolik)
Ruling:
The Seventh Circuit Court of Appeals affirmed the denial of debtor's discharge of his educational loans, holding that the determining factor of whether educational loans are educational or not is the purpose of the loan, not the use of the loan proceeds. The Court also affirmed the award of attorney fees for the creditor, as contractually provided for within the terms of the promissory note, and not in violation of the "American Rule" as argued by debtor. Finally, the Court affirmed the denial of sanctions under 9011(c)(1)(A) by the debtor as the debtor failed to provide the creditor with any opportunity to purge itself of sanctionable conduct under the 'safe harbor' rule, and affirmed the award of sanctions, for a lesser amount (by one half), imposed by the court against the Debtor through Fed R Bankr P 8020, such that he award would have deterrent effect, rather than result in financial ruin.
Facts:
Debtor was a student at the Milwaukee School of Engineering (MSOE) from September 1999 through May 2000. He borrowerd $3,000 on October 29, 1999. MSOE sued debtor in April 2005 on account of the note, and obtained a default judgment for $5,909.63. In June 2005, Debtor filed a Chapter 13 petition that was later converted to a Chapter 7 proceeding. MSOE was listed as a creditor, and Debtor filed an adversary to determine dischargeability of the debt. The bankruptcy court found the debt to be non-dischargeable and found that the Debtor owed MSOE $16,248.78, which included costs and attorney fees. Sanctions, on appeal to the District Court, were imposed by the court in an amount just exceeding $60,000.00. The Seventh Circuit reduced the sanction award by just over $30,000.00, finding same would deter future sanctionable conduct by the parties, without finanicially ruining the debtor and his counsel.
11th Circuit: Abrams v. Saint Felix (In re Miller)
Citation:
Case No. 10-12085 (11th Cir. Feb. 10, 2011)
Ruling:
The Eleventh Circuit reversed the district court's affirmance of the bankruptcy court's award of Rule 9011 sanctions because the motion for sanctions did not identify with specificty the conduct alleged to be sanctionable as required by Rule 9011(c)(1)(A).
Facts:
The trustee in bankruptcy sued Mr. Saint Felix to recover an alleged fraudulent transfer to him by the debtor of real property. In response, Mr. Sanit Felix served a Rule 11 motion. SImultaneously with service of the Rule 11 moion, Mr. Saint Felix filed a motion to dismiss; however, he subsequently withdrew the motion to dismiss and then filed a motion for summary judgment. Of note, the motion for sanctions did not refer to or incorporate the bases for the motion to dismiss. Contrary to the requirement of Rule 9011(c)(1)(A), the sanctions motion did not identify the alleged sanctionable conduct. Nevertheless, the bankruptcy court imposed sanctions which award was affirmed by the district court. On further appeal, the Eleventh Circuit held that the award of sanctions was an abuse of discretion because the sanctions motion did not identify the alleged sanctionable conduct. The Eleventh Circuit rejected Mr. Saint Felix's argument that notice was provided by the contemporaneously filed motion to didmiss, explaining that the rule required the sanctions motion to include that information and in any event the sanctions motion did not refer to or incorporate the motion to dismiss which, in fact, was subsequently withdrawn.
Ruling:
The Seventh Circuit Court of Appeals affirmed the denial of debtor's discharge of his educational loans, holding that the determining factor of whether educational loans are educational or not is the purpose of the loan, not the use of the loan proceeds. The Court also affirmed the award of attorney fees for the creditor, as contractually provided for within the terms of the promissory note, and not in violation of the "American Rule" as argued by debtor. Finally, the Court affirmed the denial of sanctions under 9011(c)(1)(A) by the debtor as the debtor failed to provide the creditor with any opportunity to purge itself of sanctionable conduct under the 'safe harbor' rule, and affirmed the award of sanctions, for a lesser amount (by one half), imposed by the court against the Debtor through Fed R Bankr P 8020, such that he award would have deterrent effect, rather than result in financial ruin.
Facts:
Debtor was a student at the Milwaukee School of Engineering (MSOE) from September 1999 through May 2000. He borrowerd $3,000 on October 29, 1999. MSOE sued debtor in April 2005 on account of the note, and obtained a default judgment for $5,909.63. In June 2005, Debtor filed a Chapter 13 petition that was later converted to a Chapter 7 proceeding. MSOE was listed as a creditor, and Debtor filed an adversary to determine dischargeability of the debt. The bankruptcy court found the debt to be non-dischargeable and found that the Debtor owed MSOE $16,248.78, which included costs and attorney fees. Sanctions, on appeal to the District Court, were imposed by the court in an amount just exceeding $60,000.00. The Seventh Circuit reduced the sanction award by just over $30,000.00, finding same would deter future sanctionable conduct by the parties, without finanicially ruining the debtor and his counsel.
11th Circuit: Abrams v. Saint Felix (In re Miller)
Citation:
Case No. 10-12085 (11th Cir. Feb. 10, 2011)
Ruling:
The Eleventh Circuit reversed the district court's affirmance of the bankruptcy court's award of Rule 9011 sanctions because the motion for sanctions did not identify with specificty the conduct alleged to be sanctionable as required by Rule 9011(c)(1)(A).
Facts:
The trustee in bankruptcy sued Mr. Saint Felix to recover an alleged fraudulent transfer to him by the debtor of real property. In response, Mr. Sanit Felix served a Rule 11 motion. SImultaneously with service of the Rule 11 moion, Mr. Saint Felix filed a motion to dismiss; however, he subsequently withdrew the motion to dismiss and then filed a motion for summary judgment. Of note, the motion for sanctions did not refer to or incorporate the bases for the motion to dismiss. Contrary to the requirement of Rule 9011(c)(1)(A), the sanctions motion did not identify the alleged sanctionable conduct. Nevertheless, the bankruptcy court imposed sanctions which award was affirmed by the district court. On further appeal, the Eleventh Circuit held that the award of sanctions was an abuse of discretion because the sanctions motion did not identify the alleged sanctionable conduct. The Eleventh Circuit rejected Mr. Saint Felix's argument that notice was provided by the contemporaneously filed motion to didmiss, explaining that the rule required the sanctions motion to include that information and in any event the sanctions motion did not refer to or incorporate the motion to dismiss which, in fact, was subsequently withdrawn.
10th Cir Finds No Evidence of Willful Violation in FCRA Inaccurate Reporting Case
Birmingham v Experian
The United States Court of Appeals for the Tenth Circuit recently held that a credit reporting agency did not violate the federal Fair Credit Report Act in its response to a consumer’s complaints of errors in his record.
The plaintiff individual was the victim of identity theft, which led to two fraudulent accounts being opened with Verizon Wireless in his name, as well as disputed charges as to his legitimate Verizon accounts. All accounts were closed, but because the plaintiff had legitimate accounts with Verizon, and failed to pay money owed under the legitimate accounts, Verizon reported his failure to pay the charges to the three major credit-reporting agencies, including Experian Information Solutions, Inc. (Experian). After disputing the reports and being dissatisfied with the response, the plaintiff brought a lawsuit in federal court naming various Verizon entities and Experian, among others, alleging violations of the Fair Credit Reporting Act (FCRA) and Utah law. The district court granted summary judgment in favor of Experian finding no violation of FCRA and dismissed the claims against the Verizon entities because the proper Verizon entity was not named as a defendant. The plaintiff then appealed.
With respect to Experian, the appellate court noted that the sole issue before it was whether Experian intentionally or recklessly failed to adequately investigate the plaintiff’s dispute with Verizon. As you may recall, the FCRA provides that: “Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” 15 U.S.C. § 1681e(b). A “willful” violation is “either an intentional violation or a violation committed by an agency in reckless disregard of its duties under the FCRA.” See Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57–58 (2007). A consumer need not prove actual damages if the violation is willful.
In upholding the district court's ruling, the appellate court noted that the plaintiff presented little evidence regarding what Experian knew and when it knew it, and that there was “a dispute of fact regarding when and how Plaintiff complained to Experian.” The court then went through the relevant facts in the course of its analysis:
The plaintiff stated that he disputed the charges online and that he did so approximately every six months, though he had no records of doing so. A letter from Experian produced in discovery indicated that it was not Plaintiff that first provided notice of a problem. Instead, it stated that Experian had “added an Initial Security Alert to [Plaintiff’s] credit file as requested on [his] behalf by one or more of the nationwide consumer credit reporting agencies," and further advised Plaintiff of what information he would need to provide (such as his social security number and a police report) to place an extended fraud alert on his credit file and to block information on his file that he believed resulted from identity theft. Nevertheless, the plaintiff never sent any credit reporting agency a copy of the police report.
A few months later, the plaintiff sent a letter to the three credit-reporting agencies. The letter provided his name, his current address, and a contact telephone number. It requested a free credit report and the removal from his credit file of derogatory information provided by Verizon. Experian responded a week later in a letter stating that it could not honor his request because it was “unable to access [his] report using the identification information [he] provided.” The letter explained that for a person to access his own credit report, Experian requires the person’s full name, current mailing address and two proofs of the address, social security number, date of birth, and complete addresses for the past two years. The letter provided an internet address and phone number to contact if Plaintiff already had a personal credit report, thought the information to be inaccurate, and wished to request an investigation. There was no evidence of a response.
The Court held that, on this record, Experian was entitled to summary judgment on the willful misconduct claim. The Court reasoned that the standards employed by Experian and the information it requested from Plaintiff were reasonable. Further, the court noted that it had “been pointed to no described practice that would be a reckless violation of the FCRA.” Therefore, the court held that a reasonable person reviewing the evidence before the district court could not find Experian to have committed a willful violation of the FCRA.
With respect to the Verizon entities, the Court noted that the issue was whether Plaintiff had named the right entity as a defendant. The Court held that the plaintiff had not, despite becoming aware of which Verizon entity was the correct entity months before the motions for summary judgment were heard. After finding that the delay was unexcused, the Court upheld the district court’s denial of the plaintiff’s motion for leave to amend his pleadings to name the proper entity.
The United States Court of Appeals for the Tenth Circuit recently held that a credit reporting agency did not violate the federal Fair Credit Report Act in its response to a consumer’s complaints of errors in his record.
The plaintiff individual was the victim of identity theft, which led to two fraudulent accounts being opened with Verizon Wireless in his name, as well as disputed charges as to his legitimate Verizon accounts. All accounts were closed, but because the plaintiff had legitimate accounts with Verizon, and failed to pay money owed under the legitimate accounts, Verizon reported his failure to pay the charges to the three major credit-reporting agencies, including Experian Information Solutions, Inc. (Experian). After disputing the reports and being dissatisfied with the response, the plaintiff brought a lawsuit in federal court naming various Verizon entities and Experian, among others, alleging violations of the Fair Credit Reporting Act (FCRA) and Utah law. The district court granted summary judgment in favor of Experian finding no violation of FCRA and dismissed the claims against the Verizon entities because the proper Verizon entity was not named as a defendant. The plaintiff then appealed.
With respect to Experian, the appellate court noted that the sole issue before it was whether Experian intentionally or recklessly failed to adequately investigate the plaintiff’s dispute with Verizon. As you may recall, the FCRA provides that: “Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” 15 U.S.C. § 1681e(b). A “willful” violation is “either an intentional violation or a violation committed by an agency in reckless disregard of its duties under the FCRA.” See Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57–58 (2007). A consumer need not prove actual damages if the violation is willful.
In upholding the district court's ruling, the appellate court noted that the plaintiff presented little evidence regarding what Experian knew and when it knew it, and that there was “a dispute of fact regarding when and how Plaintiff complained to Experian.” The court then went through the relevant facts in the course of its analysis:
The plaintiff stated that he disputed the charges online and that he did so approximately every six months, though he had no records of doing so. A letter from Experian produced in discovery indicated that it was not Plaintiff that first provided notice of a problem. Instead, it stated that Experian had “added an Initial Security Alert to [Plaintiff’s] credit file as requested on [his] behalf by one or more of the nationwide consumer credit reporting agencies," and further advised Plaintiff of what information he would need to provide (such as his social security number and a police report) to place an extended fraud alert on his credit file and to block information on his file that he believed resulted from identity theft. Nevertheless, the plaintiff never sent any credit reporting agency a copy of the police report.
A few months later, the plaintiff sent a letter to the three credit-reporting agencies. The letter provided his name, his current address, and a contact telephone number. It requested a free credit report and the removal from his credit file of derogatory information provided by Verizon. Experian responded a week later in a letter stating that it could not honor his request because it was “unable to access [his] report using the identification information [he] provided.” The letter explained that for a person to access his own credit report, Experian requires the person’s full name, current mailing address and two proofs of the address, social security number, date of birth, and complete addresses for the past two years. The letter provided an internet address and phone number to contact if Plaintiff already had a personal credit report, thought the information to be inaccurate, and wished to request an investigation. There was no evidence of a response.
The Court held that, on this record, Experian was entitled to summary judgment on the willful misconduct claim. The Court reasoned that the standards employed by Experian and the information it requested from Plaintiff were reasonable. Further, the court noted that it had “been pointed to no described practice that would be a reckless violation of the FCRA.” Therefore, the court held that a reasonable person reviewing the evidence before the district court could not find Experian to have committed a willful violation of the FCRA.
With respect to the Verizon entities, the Court noted that the issue was whether Plaintiff had named the right entity as a defendant. The Court held that the plaintiff had not, despite becoming aware of which Verizon entity was the correct entity months before the motions for summary judgment were heard. After finding that the delay was unexcused, the Court upheld the district court’s denial of the plaintiff’s motion for leave to amend his pleadings to name the proper entity.
RSBS Citizen v. RTGO
The Appellate Court of Illinois for the First District recently held that an interest provision in a loan agreement was not ambiguous and therefore the borrower was not entitled to claims under the Interest Act, good faith and fair dealing, and statutory and consumer fraud, based on alleged misrepresentations and ambiguity in the interest provision.
The borrower and lender entered into a loan agreement to finance the development of a residential condominium project. After the borrower defaulted on the loan, the parties executed a series of forbearance agreements. The loan remained unpaid and ultimately the lender filed a complaint for foreclosure.
The borrowers filed an answer, affirmative defenses and counterclaims based on alleged violations of the Illinois Interest Act (815 ILCS 205/1, et seq.), the duty of good faith and fair dealing, the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) (815 ILCS 505/1, et seq.), and common law fraud. The borrower’s allegations revolved around the general contention that the lender did not disclose its method of computing and charging interest, and unlawfully increased the amount of interest charged on the loan.
The lender moved to strike and dismiss all affirmative defenses and counterclaims. The circuit court granted the motion, dismissing the affirmative defenses and counterclaims with prejudice. The circuit court later denied a motion to reconsider its dismissal, and the borrowers appealed.
In upholding the circuit court, the appellate court first examined language in the forbearance agreement signed by the borrower that provided that the borrower had “no claims or defenses to the enforcement of the rights and remedies of Lender thereunder,” and that the agreements and relevant loan documents “constitute the legal, valid and binding obligations of Borrower, enforceable against it in accordance with their respective terms, and Borrower has no valid defense to the enforcement of such obligations.” The court noted that the forbearance agreements containing a waiver of defenses were executed in 2008, and the alleged offenses occurred upon the execution of the Note in 2005.
The appellate court held that Illinois law permits a party to contractually waive all defenses, though the duty of good faith and fair dealing is not waived absent an
“express disavowal,” which the appellate court found the above language did not do. However, the appellate court noted that a waiver of defenses was inapplicable to claims originating under the ICFA.
Nevertheless, the appellate court found the waiver of defenses was essentially part of the consideration that the lender received in exchange for a forbearance agreement. It noted that it “would be inclined to find that defendants also waived any affirmative defense or counterclaim based upon the Interest Act and common law fraud.” However, the Court “nevertheless address[ed] defendants’ contentions for the sake of completeness.”
The Court noted that each of the borrowers’ affirmative defenses and counterclaims revolved around the same basic theory – that the borrowers were mislead as to the amount of interest that would be paid under the loan. The court noted that there are generally three different methods lenders use to compute interest: the 365/365 method, 360/360 method, and 365/360 method.
The lender utilized the 365/360 method when charging interest under the loan, but the borrowers argued that the loan identified the rate as “per annum,” which they argued is defined as “by the year.” The relevant portion of the loan provided as follows with respect to interest charged: “Interest shall be computed on the principal balance outstanding from time to time, on the basis of a three hundred sixty (360) day year, but shall be charged for the actual number of days within the period for which interest is being charged.”
The Court noted that the phrase per annum does not appear in the interest provision. The Court therefore found that there was no ambiguity in the language and that the loan provided for the 365/360 method of interest calculation. Therefore, the appellate court held that the lender did not violate the Interest Act.
The Court next discussed the claims revolving around a duty of good faith and fair dealing. It noted that they occur “when one party is given broad discretion in performing its obligations under the contract.” The plaintiff borrowers alleged that the defendant lender breached this duty by (1) “deliberately creat[ing] ambiguity in the language of the loan documents” as to the calculation of interest; and (2) “exercise[ing] its discretion to calculate interest in a manner that charged *** more interest than Defendants reasonably expected.” The Court first noted that the duty of good faith and fair dealing, did “not arise out of precontractual actions and is only applicable to the conduct of parties to an existing contract.” Accordingly, it held that any allegations relating to the formation of the loan agreement did not implicate or violate the duty of good faith and fair dealing. The Court further found that since the agreement was not ambiguous, the lender did not exercise any discretion and therefore the second argument was also without merit.
With respect to the statutory and common law fraud claims, the Court noted that the borrowers’ fraud claims were predicated upon an assertion that the interest calculation method was deceptive and based upon misrepresentations and false statements. The Court held that there could be no statutory or common law fraud because there was no evidence of any impropriety or deception on the part of the lender and because it already determined that the loan agreement was unambiguous.
Finally, the appellate court found that the claims were properly dismissed with prejudice because the borrowers would not be able to cure the defect in the claims simply be repleading. However, the Court denied the lender’s request for sanctions against the borrowers for filing a frivolous appeal, noting that while it was unpersuaded by the borrowers’ arguments, it was not unreasonable that the borrowers would appeal the circuit court’s decision given that the primary issues on appeal were subject to de novo review and largely dependent upon an interpretation of a single contract provision.
The borrower and lender entered into a loan agreement to finance the development of a residential condominium project. After the borrower defaulted on the loan, the parties executed a series of forbearance agreements. The loan remained unpaid and ultimately the lender filed a complaint for foreclosure.
The borrowers filed an answer, affirmative defenses and counterclaims based on alleged violations of the Illinois Interest Act (815 ILCS 205/1, et seq.), the duty of good faith and fair dealing, the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) (815 ILCS 505/1, et seq.), and common law fraud. The borrower’s allegations revolved around the general contention that the lender did not disclose its method of computing and charging interest, and unlawfully increased the amount of interest charged on the loan.
The lender moved to strike and dismiss all affirmative defenses and counterclaims. The circuit court granted the motion, dismissing the affirmative defenses and counterclaims with prejudice. The circuit court later denied a motion to reconsider its dismissal, and the borrowers appealed.
In upholding the circuit court, the appellate court first examined language in the forbearance agreement signed by the borrower that provided that the borrower had “no claims or defenses to the enforcement of the rights and remedies of Lender thereunder,” and that the agreements and relevant loan documents “constitute the legal, valid and binding obligations of Borrower, enforceable against it in accordance with their respective terms, and Borrower has no valid defense to the enforcement of such obligations.” The court noted that the forbearance agreements containing a waiver of defenses were executed in 2008, and the alleged offenses occurred upon the execution of the Note in 2005.
The appellate court held that Illinois law permits a party to contractually waive all defenses, though the duty of good faith and fair dealing is not waived absent an
“express disavowal,” which the appellate court found the above language did not do. However, the appellate court noted that a waiver of defenses was inapplicable to claims originating under the ICFA.
Nevertheless, the appellate court found the waiver of defenses was essentially part of the consideration that the lender received in exchange for a forbearance agreement. It noted that it “would be inclined to find that defendants also waived any affirmative defense or counterclaim based upon the Interest Act and common law fraud.” However, the Court “nevertheless address[ed] defendants’ contentions for the sake of completeness.”
The Court noted that each of the borrowers’ affirmative defenses and counterclaims revolved around the same basic theory – that the borrowers were mislead as to the amount of interest that would be paid under the loan. The court noted that there are generally three different methods lenders use to compute interest: the 365/365 method, 360/360 method, and 365/360 method.
The lender utilized the 365/360 method when charging interest under the loan, but the borrowers argued that the loan identified the rate as “per annum,” which they argued is defined as “by the year.” The relevant portion of the loan provided as follows with respect to interest charged: “Interest shall be computed on the principal balance outstanding from time to time, on the basis of a three hundred sixty (360) day year, but shall be charged for the actual number of days within the period for which interest is being charged.”
The Court noted that the phrase per annum does not appear in the interest provision. The Court therefore found that there was no ambiguity in the language and that the loan provided for the 365/360 method of interest calculation. Therefore, the appellate court held that the lender did not violate the Interest Act.
The Court next discussed the claims revolving around a duty of good faith and fair dealing. It noted that they occur “when one party is given broad discretion in performing its obligations under the contract.” The plaintiff borrowers alleged that the defendant lender breached this duty by (1) “deliberately creat[ing] ambiguity in the language of the loan documents” as to the calculation of interest; and (2) “exercise[ing] its discretion to calculate interest in a manner that charged *** more interest than Defendants reasonably expected.” The Court first noted that the duty of good faith and fair dealing, did “not arise out of precontractual actions and is only applicable to the conduct of parties to an existing contract.” Accordingly, it held that any allegations relating to the formation of the loan agreement did not implicate or violate the duty of good faith and fair dealing. The Court further found that since the agreement was not ambiguous, the lender did not exercise any discretion and therefore the second argument was also without merit.
With respect to the statutory and common law fraud claims, the Court noted that the borrowers’ fraud claims were predicated upon an assertion that the interest calculation method was deceptive and based upon misrepresentations and false statements. The Court held that there could be no statutory or common law fraud because there was no evidence of any impropriety or deception on the part of the lender and because it already determined that the loan agreement was unambiguous.
Finally, the appellate court found that the claims were properly dismissed with prejudice because the borrowers would not be able to cure the defect in the claims simply be repleading. However, the Court denied the lender’s request for sanctions against the borrowers for filing a frivolous appeal, noting that while it was unpersuaded by the borrowers’ arguments, it was not unreasonable that the borrowers would appeal the circuit court’s decision given that the primary issues on appeal were subject to de novo review and largely dependent upon an interpretation of a single contract provision.
Baud v. Carroll
Middle District of Tennessee.
Baud v. Carroll, 2011 WL 338001 (Sixth Cir. Feb. 4, 2011) (Cole) (Published at ConsiderChapter13.org 2/14/11)
The applicable commitment period of a Chapter 13 plan requires payments to be made over a time equal to the applicable commitment period; a debtor’s projected disposable income excludes benefits received under the Social Security Act; and there is no exception to the temporal requirement for debtors with a negative projected disposable income
Baud v. Carroll, 2011 WL 338001 (Sixth Cir. Feb. 4, 2011) (Cole) (Published at ConsiderChapter13.org 2/14/11)
The applicable commitment period of a Chapter 13 plan requires payments to be made over a time equal to the applicable commitment period; a debtor’s projected disposable income excludes benefits received under the Social Security Act; and there is no exception to the temporal requirement for debtors with a negative projected disposable income
Housing Crash Is Hitting Cities Once Thought to Be Stable
The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune - economically diversified cities where the boom was relatively restrained, the New York Times reported today. In the last year, home prices in Seattle had a bigger decline than in Las Vegas, while Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix. The bubble markets, where builders, buyers and banks ran wild, began falling first, economists say, so they are close to the end of the cycle and in some cases on their way back up. Though the overall economy seems to be mending, housing remains stubbornly weak. CoreLogic, a data firm, said last week that American home prices fell 5.5 percent in 2010, back to the recession low of March 2009
Thursday, February 10, 2011
Robo Signers
These are the only Robo Signers I know of with depositions:
Beth Cottrell
Cheryl Samons
Renee Hertler
Xee Moua
Angela M Nolan
Erica A Johnson-Seck
Krystal Hall
Tamara Savery
Stephan Minu
Jeffery Stephan
H. John Kennerty
Bryan Bly
Christian S Hymer
William “Bill” Newland
Scott A Walter
Gregory “Greg” Allen
Shellie Hall
Alden Berner
Linda DiMaretini
Tamara Price
Cyrystal Moore
Dhurata Doko
Erica Lance
Beth Cerni
Hollan Fintel
Tamara Savery
Mary Cordova
Kelly Scott
Judy Faber
Renee D. Hertzler
Herman John Kenneerty
Tammy Lou Kapusta
Charles Herndon
Shannon Smith
Stanley Silva
The depo of Ron Wolfe does not count - he is a partner in FDLG
A couple of the girls who worked for Stern testified about what other people did, they were not robo signers but witnessess
If you have any more names or depos, please email them to me @ calh@gate.net.
Tuesday, February 8, 2011
Bankruptcy Mediation RI
Sent By the ALFN Federal Legislative Subcommittee
Mortgages (BNA 02/01/11)
Bankruptcy Judge Upholds Court's Right To Set Up Foreclosure Mediation Program
The U.S. Bankruptcy Court for the District of Rhode Island, on an issue of first impression, Jan. 28 held in two cases heard together that it has the authority to require home mortgage lenders to participate in the court's loss mitigation program (In re Sosa, Bankr. D. R.I., No. 10-11702 (ANV), 1/28/11); In re Lawton, Bankr. D. R.I., No. 10-11302 (ANV), 1/28/11).
Judge Arthur N. Votolato overruled secured creditor PHH Mortgage Corporation d/b/a PHH Mortgage Service Center's (PHH) objection to debtor Alberto G. Sosa's request for loss mitigation.
Sen. Whitehouse Sees National Model
Sen. Sheldon Whitehouse (D-R.I.) applauded Votolato's decision in a Jan. 28 news release, saying that it "is a win for Rhode Island homeowners. The Rhode Island bankruptcy court's foreclosure mediation program helps distressed families to cut through the red tape of our broken mortgage modification process and has already saved at least 100 homes in our state." Whitehouse said he hopes the decision "will encourage other bankruptcy districts to follow Rhode Island's lead and adopt similar programs."
Whitehouse Jan. 27 introduced the "Limiting Investor and Homeowner Loss in Foreclosure Act" (S. 222) to support these successful programs, and plans to chair a Senate Judiciary Committee hearing Feb. 1 on " Foreclosure Mediation Programs: Can Bankruptcy Courts Limit Homeowner and Investor Losses?" The hearing will examine whether the Rhode Island Program can serve as a model for the rest of the nation.
Case Management Tool
Votolato explained that Rhode Island's Loss Mitigation Program and Procedures Program (LMP), which became effective Nov. 1, 2009, was conceived as a case management tool "designed to encourage the resolution of differences between residential mortgage lenders and their borrowers, and to provide a way for them to access the various federal housing programs available outside of bankruptcy, such as the Home Affordable Modification Program (HAMP)." The program is intended to "start a dialogue, giving the parties nothing more than the opportunity to discuss their respective positions," Votolato said.
The "alleged dire consequences of the implementation of such a Program, as predicted by PHH have not materialized," the court said, and "if any do emerge, they will be judicially addressed forthwith."
Resolve 'Information Exchange Deficit.'
The bankruptcy court explained that the LMP is now operating under the Third Amended Loss Mitigation Program, effective Aug. 23, 2010. The amendments have increased the efficiency and user friendliness of the program, the court said, and simplified the use of recommended forms. Because the debtor's request for loss mitigation was filed April 27, 2010, the court noted that this proceeding is governed by the terms of the Second Amended LMP.
According to the court, the LMP "was implemented in response to the home mortgage and foreclosure crisis generally..." and to address a communication issue. "With communication between parties and a consensual resolution as the objectives, but too often without enough information to assess the likelihood of an agreement, the Court repeatedly had to postpone hearings, order the parties to confer, and report their progress at yet another hearing," the court said. The court called this an "information exchange deficit" that needed to be resolved.
The court explained that under the LMP process, (1) either the debtor or a creditor can initiate the process; (2) if objections are filed, loss mitigation may not begin unless and until such opposition is resolved; (3) after entry of a loss mitigation order, a "Party ... may request that the loss mitigation period be terminated for cause," and (4) if cause for early termination is shown, the loss mitigation process is ended.
PHH's Objections
PHH argued that the LMP (1) enlarged the substantive rights of debtors by creating or granting a previously unauthorized retention option under Bankruptcy Code Section 521(a)(2)(A); (2) violated the relief from stay time constraints under Section 362(d); (3) exceeded bankruptcy court authority under Section 105; and (4) the procedures exceeded the scope of the court's Section 105(a)'s powers.
Amicus Argument
The debtor and amicus counsel, John Rao of the National Consumer Law Center Inc. (NCLC), appointed by the court July 12, 2010, contended that even without a formal loss mitigation program in place, there is "ample authority and precedent for the Court to regulate the administration of cases pending before it." They cited Bankruptcy Code Section 105(d), Fed. R. Bankr. P. 7016, which incorporates Fed. R. Civ. P. 16, and 9014.
Court's Interest in Loss Mitigation
The court noted that it is interested in loss mitigation "to encourage and facilitate home mortgage modifications, and thereby reduce foreclosures" and to "alleviate Court congestion and delay." Noting that the LMP is but one of the court's many case management tools available to manage its caseload, the court said that "[i]f the mediation process is successful, the parties go forward in their new relationship, and the resolved matter is removed from the Court's calendar. If mediation fails, the issues are adjudicated in accordance with applicable law."
The court also noted that the Rhode Island LMP "sets specific time frames and guidelines within which parties may negotiate mortgage modification(s) or any other agreement they deem to be mutually beneficial." Further, it "does not permit the mediation process to just drift, without direction," the court said.
The LMP also requires parties to negotiate within specific deadlines, the court pointed out, and "gives secured creditors the right to speedy hearings, and termination for cause if it is shown that further negotiations would be futile."
Codify 'Ride-Through' Option
The NCLC also noted that the addition of Section 524(j) to the Bankruptcy Abuse Prevention and Consumer Protection Act renders PHH's allegations of conflict regarding Section 521(a)(2) problematic. Section 524(j), the NCLC explained, exempts secured creditors from being in violation of the discharge injunction if they seek or obtain "periodic payments associated with a valid security interest ... [in the real property that is the debtor's principal residence] ..." According to the NCLC, this insertion was to codify the "ride-through" option for distressed debtors who, with creditor assent, continue, post-discharge, to pay their mortgages.
The court noted that several courts have held that the BAPCPA amendments to Section 524(j) and 521(a)(6), with additional changes to Section 362(h) show Congress's intent to eliminate the ride-through option only as to personal property and to permit debtors to take advantage of it with respect to relevant real property without affirming the underlying debt, citing In re Carabello, 386 B.R. 398 (Bankr. D. Conn. 2008). However, the court concluded that it was governed by In re Burr, 160 F.3d 843 (1st Cir. 1998), which holds that the "ride through option is not available with respect to personal property."
The court declined to address whether debtors can force a permanent ride through on their homes without reaffirming the underlying debt. According to the court, the loss mitigation process "in no way authorizes debtors to retain such property without the creditor's consent. Rather, it merely permits the Court to extend the time necessary to perform the stated intention until the parties know whether:
1) a new mortgage contract is being entered into (loan modification), or
2) the mortgage is to be reaffirmed, or
3) the property is being surrendered." Under Rhode Island's LMP, "no new substantive rights are created, nor are any existing Code provisions infringed upon," the court concluded.
'Compelling Circumstances' Exist
PHH also argued that the LMP conflicted with the relief from stay provisions of Section 362. The court disagreed, concluding that Section 362 is not so constraining that such a conflict should result in the nullification of the entire program. Section 362(e), the court explained, authorizes the court to extend the automatic stay for a specific time in "compelling circumstances." The court found that in light of the federal housing programs designed to assist distressed borrowers and their lenders, "compelling circumstances clearly exist to extend the stay for the 60 to 90 days required by the negotiating parties to complete the loss mitigation process."
The court, however, noted that the program is relatively new and it will, as a result, continue to "examine, refine, and amend the LMP as necessary to maintain its utility, integrity, and operation as long as necessary."
Allow Motions for Relief From Stay
To keep the program "as neutral and user friendly as possible," the court said that upon filing of this decision, the LMP would be amended, prospectively, to "allow motions for relief from stay to be filed during the loss mitigation period." The court noted, however, that "if it appears that such motions are being filed prematurely, and/or primarily to drive up costs to debtors, particularly when a consensual loan modification is in progress, the Court will consider, on a case by case basis, whether such fees and costs are appropriate."
Michael W. Favicchio of Warwick, R.I., represents the debtor. Lynn Bovier Kapiskas of Law Offices of Mark L. Smith, North Smithfield, R.I., represents PHH Mortgage Corporation d/b/a PHH Mortgage Service Center. Susan W. Cody and John McNicholas of Korde & Associates, Chelmsford, Mass., represents PHH Mortgage Service Center. John Rao of National Consumer Law Center Inc., Boston, Mass., is amicus counsel.
Mortgages (BNA 02/01/11)
Bankruptcy Judge Upholds Court's Right To Set Up Foreclosure Mediation Program
The U.S. Bankruptcy Court for the District of Rhode Island, on an issue of first impression, Jan. 28 held in two cases heard together that it has the authority to require home mortgage lenders to participate in the court's loss mitigation program (In re Sosa, Bankr. D. R.I., No. 10-11702 (ANV), 1/28/11); In re Lawton, Bankr. D. R.I., No. 10-11302 (ANV), 1/28/11).
Judge Arthur N. Votolato overruled secured creditor PHH Mortgage Corporation d/b/a PHH Mortgage Service Center's (PHH) objection to debtor Alberto G. Sosa's request for loss mitigation.
Sen. Whitehouse Sees National Model
Sen. Sheldon Whitehouse (D-R.I.) applauded Votolato's decision in a Jan. 28 news release, saying that it "is a win for Rhode Island homeowners. The Rhode Island bankruptcy court's foreclosure mediation program helps distressed families to cut through the red tape of our broken mortgage modification process and has already saved at least 100 homes in our state." Whitehouse said he hopes the decision "will encourage other bankruptcy districts to follow Rhode Island's lead and adopt similar programs."
Whitehouse Jan. 27 introduced the "Limiting Investor and Homeowner Loss in Foreclosure Act" (S. 222) to support these successful programs, and plans to chair a Senate Judiciary Committee hearing Feb. 1 on " Foreclosure Mediation Programs: Can Bankruptcy Courts Limit Homeowner and Investor Losses?" The hearing will examine whether the Rhode Island Program can serve as a model for the rest of the nation.
Case Management Tool
Votolato explained that Rhode Island's Loss Mitigation Program and Procedures Program (LMP), which became effective Nov. 1, 2009, was conceived as a case management tool "designed to encourage the resolution of differences between residential mortgage lenders and their borrowers, and to provide a way for them to access the various federal housing programs available outside of bankruptcy, such as the Home Affordable Modification Program (HAMP)." The program is intended to "start a dialogue, giving the parties nothing more than the opportunity to discuss their respective positions," Votolato said.
The "alleged dire consequences of the implementation of such a Program, as predicted by PHH have not materialized," the court said, and "if any do emerge, they will be judicially addressed forthwith."
Resolve 'Information Exchange Deficit.'
The bankruptcy court explained that the LMP is now operating under the Third Amended Loss Mitigation Program, effective Aug. 23, 2010. The amendments have increased the efficiency and user friendliness of the program, the court said, and simplified the use of recommended forms. Because the debtor's request for loss mitigation was filed April 27, 2010, the court noted that this proceeding is governed by the terms of the Second Amended LMP.
According to the court, the LMP "was implemented in response to the home mortgage and foreclosure crisis generally..." and to address a communication issue. "With communication between parties and a consensual resolution as the objectives, but too often without enough information to assess the likelihood of an agreement, the Court repeatedly had to postpone hearings, order the parties to confer, and report their progress at yet another hearing," the court said. The court called this an "information exchange deficit" that needed to be resolved.
The court explained that under the LMP process, (1) either the debtor or a creditor can initiate the process; (2) if objections are filed, loss mitigation may not begin unless and until such opposition is resolved; (3) after entry of a loss mitigation order, a "Party ... may request that the loss mitigation period be terminated for cause," and (4) if cause for early termination is shown, the loss mitigation process is ended.
PHH's Objections
PHH argued that the LMP (1) enlarged the substantive rights of debtors by creating or granting a previously unauthorized retention option under Bankruptcy Code Section 521(a)(2)(A); (2) violated the relief from stay time constraints under Section 362(d); (3) exceeded bankruptcy court authority under Section 105; and (4) the procedures exceeded the scope of the court's Section 105(a)'s powers.
Amicus Argument
The debtor and amicus counsel, John Rao of the National Consumer Law Center Inc. (NCLC), appointed by the court July 12, 2010, contended that even without a formal loss mitigation program in place, there is "ample authority and precedent for the Court to regulate the administration of cases pending before it." They cited Bankruptcy Code Section 105(d), Fed. R. Bankr. P. 7016, which incorporates Fed. R. Civ. P. 16, and 9014.
Court's Interest in Loss Mitigation
The court noted that it is interested in loss mitigation "to encourage and facilitate home mortgage modifications, and thereby reduce foreclosures" and to "alleviate Court congestion and delay." Noting that the LMP is but one of the court's many case management tools available to manage its caseload, the court said that "[i]f the mediation process is successful, the parties go forward in their new relationship, and the resolved matter is removed from the Court's calendar. If mediation fails, the issues are adjudicated in accordance with applicable law."
The court also noted that the Rhode Island LMP "sets specific time frames and guidelines within which parties may negotiate mortgage modification(s) or any other agreement they deem to be mutually beneficial." Further, it "does not permit the mediation process to just drift, without direction," the court said.
The LMP also requires parties to negotiate within specific deadlines, the court pointed out, and "gives secured creditors the right to speedy hearings, and termination for cause if it is shown that further negotiations would be futile."
Codify 'Ride-Through' Option
The NCLC also noted that the addition of Section 524(j) to the Bankruptcy Abuse Prevention and Consumer Protection Act renders PHH's allegations of conflict regarding Section 521(a)(2) problematic. Section 524(j), the NCLC explained, exempts secured creditors from being in violation of the discharge injunction if they seek or obtain "periodic payments associated with a valid security interest ... [in the real property that is the debtor's principal residence] ..." According to the NCLC, this insertion was to codify the "ride-through" option for distressed debtors who, with creditor assent, continue, post-discharge, to pay their mortgages.
The court noted that several courts have held that the BAPCPA amendments to Section 524(j) and 521(a)(6), with additional changes to Section 362(h) show Congress's intent to eliminate the ride-through option only as to personal property and to permit debtors to take advantage of it with respect to relevant real property without affirming the underlying debt, citing In re Carabello, 386 B.R. 398 (Bankr. D. Conn. 2008). However, the court concluded that it was governed by In re Burr, 160 F.3d 843 (1st Cir. 1998), which holds that the "ride through option is not available with respect to personal property."
The court declined to address whether debtors can force a permanent ride through on their homes without reaffirming the underlying debt. According to the court, the loss mitigation process "in no way authorizes debtors to retain such property without the creditor's consent. Rather, it merely permits the Court to extend the time necessary to perform the stated intention until the parties know whether:
1) a new mortgage contract is being entered into (loan modification), or
2) the mortgage is to be reaffirmed, or
3) the property is being surrendered." Under Rhode Island's LMP, "no new substantive rights are created, nor are any existing Code provisions infringed upon," the court concluded.
'Compelling Circumstances' Exist
PHH also argued that the LMP conflicted with the relief from stay provisions of Section 362. The court disagreed, concluding that Section 362 is not so constraining that such a conflict should result in the nullification of the entire program. Section 362(e), the court explained, authorizes the court to extend the automatic stay for a specific time in "compelling circumstances." The court found that in light of the federal housing programs designed to assist distressed borrowers and their lenders, "compelling circumstances clearly exist to extend the stay for the 60 to 90 days required by the negotiating parties to complete the loss mitigation process."
The court, however, noted that the program is relatively new and it will, as a result, continue to "examine, refine, and amend the LMP as necessary to maintain its utility, integrity, and operation as long as necessary."
Allow Motions for Relief From Stay
To keep the program "as neutral and user friendly as possible," the court said that upon filing of this decision, the LMP would be amended, prospectively, to "allow motions for relief from stay to be filed during the loss mitigation period." The court noted, however, that "if it appears that such motions are being filed prematurely, and/or primarily to drive up costs to debtors, particularly when a consensual loan modification is in progress, the Court will consider, on a case by case basis, whether such fees and costs are appropriate."
Michael W. Favicchio of Warwick, R.I., represents the debtor. Lynn Bovier Kapiskas of Law Offices of Mark L. Smith, North Smithfield, R.I., represents PHH Mortgage Corporation d/b/a PHH Mortgage Service Center. Susan W. Cody and John McNicholas of Korde & Associates, Chelmsford, Mass., represents PHH Mortgage Service Center. John Rao of National Consumer Law Center Inc., Boston, Mass., is amicus counsel.
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