Wednesday, September 14, 2011
Pets as a Medical Expense in Your Ch 13
http://www.feedblitz.com/f/?FBLike=http://lawprofessors.typepad.com/bankruptcyprof_blog/2011/08/pets-and-chapter-13.html
Bankruptcy Filings Down
August consumer bankruptcies decreased 11 percent nationwide from August 2010, according to data from the National Bankruptcy Research Center (NBKRC). The data showed that the overall consumer filing total for August declined to 113,432, down from the 127,028 consumer filings recorded in August 2010. Each month of 2011 has recorded fewer bankruptcies than last year.
9th Cir Allows Oregon UDCPA Claim Based on Failure to Respond Under FCBA, Actual Damages Under FCBA w/o Detrimental Reliance, Multiple Penalties for Multiple FCBA
The U.S. Court of Appeals for the Ninth Circuit recently held that a creditor violated the federal Fair Credit Billing Act ("FCBA"), and Oregon's Unlawful Debt Collection Practices Act ("UDCPA"), when it reported a debt as delinquent to credit agencies and continued its collection activities without first providing an explanation to the debtor who had contested the debt.
According to the Ninth Circuit: (1) these alleged actions by the creditor violated the Oregon UDCPA, based on the alleged violation of the FCBA;
(2) the debtor was entitled to actual damages and attorney fees under the FCBA, regardless of whether the debtor demonstrated detrimental reliance on the representations made by the creditor; (3) TILA's limitation of a single recovery for multiple failures to disclose does not necessarily apply to the FCBA; and (4) the trial court failed to properly apportion an attorneys fee award as to the debtor's successful claims.
A copy of the opinion is available at:
This case arose from a misunderstanding regarding a $645 charge on the credit-card bill of the debtor. The creditor allegedly misidentified the basis for the charge but then allegedly failed to respond to the debtor's requests for information about it. The creditor allegedly continued to seek payment and reported the debt as delinquent to credit agencies, despite the debtor's alleged protest.
In doing so, the Ninth Circuit noted that creditor admittedly violated the federal Fair Credit Billing Act ("FCBA"). After unsuccessfully attempting to get a direct response from the creditor, the debtor filed an action in the District of Oregon, alleging inter alia claims under the FCBA and Oregon's Unlawful Debt Collection Practices Act ("UDCPA").
The trial court dismissed the UDCPA claim and limited the debtor's total recovery under the FCBA to $1000. The Ninth Circuit reversed.
According to the Ninth Circuit, if a credit card holder sends a written notice disputing a charge within sixty days of receiving a bill, FCBA requires a credit-card issuer to acknowledge the dispute within thirty days, investigate the matter, and provide a written explanation of its decision within ninety days. If a creditor fails these requirements, it is subject to civil liability and forfeiture of the disputed amount.
Similarly, the Ninth Circuit held, the Oregon UDCPA prohibits a debt collector from "[a]ttempt[ing] to or threaten[ing] to enforce a right or remedy with knowledge or reason to know that the right or remedy does not exist."
Examining the above statutes, the Court concluded that the trial court erred in holding that the debtor failed to state a claim under the Oregon UDCPA. The Court reasoned, that pursuant to the requirements imposed under the FCBA, the creditor did not have the right to attempt to collect the disputed charge or to report it to credit agencies as delinquent without first providing a written explanation. These allegations, the Court held, also violated the Oregon UDCPA.
The Court also rejected that a detrimental reliance component was required for the debtor's Oregon UDCPA allegations, reasoning that there was simply no relevant disclosure or conduct under these circumstances that the debtor could have relied upon. Thus, the debtor's lack of detrimental reliance was immaterial to a determination of whether the creditor's violations resulted in actual damages. Debtors, explained the Court, cannot rely on unmade explanations. Otherwise, creditors could simply avoid actual damages under FCBA by never responding to billing disputes.
Next, the Court determined that the creditor's collection actions and adverse credit reports were not subject to the single-recovery limitation under 15 U.S.C. 1640(g). Further, the Court also concluded that the debtor was entitled to all reasonable attorney fees, including those incurred for the appeal, related to the debtor's FCBA claims.
NY Banking Dept Reaches Servicing/Foreclosure Practices Agreement with Goldman, Litton, Ocwen
New York's Department of Financial Services and Banking Department entered into an agreement with Goldman Sachs Bank, Ocwen Financial Corp. and Litton Loan Servicing LP regarding certain servicing and foreclosure practices.
A copy of the Agreement on Mortgage Servicing Practices is available at:
df
As part of the Agreement, Goldman Sachs will write down approximately $13 million in unpaid principal, consisting of forgiveness on 25 percent of the principal balance all 60-day delinquent first-lien home loans in New York serviced by Litton and owned by Goldman Sachs and its subsidiaries as of August 1, 2011.
The Agreement is a condition of Ocwen's acquisition of Litton, and does not preclude any future investigations of past practices or release any future claims or actions. In addition, if any party to this Agreement agrees with any other regulator to adopt greater consumer protections or other more rigorous standards than are contained in this Agreement, such other provisions shall be applicable to the party.
Among other things, the Agreement requires servicing and foreclosure practice changes in the following areas:
- Document execution
- Accuracy of documentation
- Standing to foreclose
- Identification and contact information of the note holder, and account/payment history, on request
- Compensation to borrowers, and voiding of third-party sales, in all wrongful foreclosures
- Regular quality assurance audits of foreclosure and bankruptcy proceedings
- Oversight of third-party vendors
- Adequate staffing and training
- Single-point-of-contact notices and related requirements
- Toll-free number set up for new loans upon acquisition or transfer of servicing
- Modification notices
- Independent review of loan mod denials
- Complaint handling and resolution procedures
- Limits on attorneys fees, late fees and delinquency charges, property valuation fees
- Limits on lender-placed insurance
Ocwen and Litton must implement these requirements within 60 days following the acquisition. Goldman, which is exiting the mortgage servicing business with the sale of Litton, has agreed to adopt these servicing practices if it should ever reenter the servicing industry.
Articles of Interest
Foreclosures: Uncle Sam and His 248,000 Homes
U.S. taxpayers are the biggest owners of repossessed homes. For now, they’re stuck with them. http://www.businessweek.com/magazine/foreclosures-uncle-sam-and-his-248000-homes-09012011.html
Robo-signed mortgage docs date back to late 1990s
http://www.google.com/hostednews/ap/article/ALeqM5getrYeAQRv3rG7noQ7QmPQQlnIaw?docId=b6873213020e4758bcd75ad770819850
As county officials review years' worth of mortgage paperwork, in some cases combing through one page at a time, they are finding suspect signatures — either signed with the same name by dozens of different people, improperly notarized or signed without a review of the facts in the paperwork — on all sorts of mortgage documents, dating as far back as 1998, The Associated Press has found.
As county officials review years' worth of mortgage paperwork, in some cases combing through one page at a time, they are finding suspect signatures — either signed with the same name by dozens of different people, improperly notarized or signed without a review of the facts in the paperwork — on all sorts of mortgage documents, dating as far back as 1998, The Associated Press has found.
10.9 million Houses Underwater
Nearly 10.9 million, or 22.5 percent, of all residential mortgages had negative equity at the end of the second quarter of the year, according to a report released Tuesday by the analytics firm CoreLogic. The figure is actually a slight improvement from the 22.7 percent of all mortgages with negative equity in the first quarter of 2011. CoreLogic says nearly three-quarters of homeowners in negative equity situations are also paying higher, above-market interest on their mortgages. Nevada held the top position in terms of negative equity with 60 percent of all of its mortgaged properties underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent), and California (30 percent). http://www.corelogic.com/
10.9 million Houses Underwater
Nearly 10.9 million, or 22.5 percent, of all residential mortgages had negative equity at the end of the second quarter of the year, according to a report released Tuesday by the analytics firm CoreLogic. The figure is actually a slight improvement from the 22.7 percent of all mortgages with negative equity in the first quarter of 2011. CoreLogic says nearly three-quarters of homeowners in negative equity situations are also paying higher, above-market interest on their mortgages. Nevada held the top position in terms of negative equity with 60 percent of all of its mortgaged properties underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent), and California (30 percent). http://www.corelogic.com/
Tuesday, September 13, 2011
2nd Cir Rejects Borrower's Arguments that Release Provisions Were Obtained by Duress
The U.S. Court of Appeals for the Second Circuit recently affirmed the dismissal of allegations that a lender obtained release agreements from a borrower through economic duress, because no evidence appeared in the record to suggest that the lender made a wrongful threat against the borrower.
Wells Fargo Bank, N.A., ("Wells Fargo") agreed to extend a line of credit to Interpharm, Inc. ("Interpharm"), a drug manufacturer. The line of credit was secured by various assets, including Interpharm's accounts receivable, inventory, and equipment. Interpharm defaulted on the line of credit agreement, and subsequently entered into and defaulted on each of a series of forbearance agreements with Wells Fargo.
Each forbearance agreement included a provision wherein Interpharm released all claims to date against Wells Fargo, as well as a merger clause stating that the written agreement represented the entire agreement between the parties. In addition, one of the forbearance agreements reflected Wells Fargo's decision to exclude certain receivables from the calculation used to determine the amount of money available to Interpharm, as well as to reduce the percentages used for that calculation.
After Interpharm defaulted on the final forbearance agreement, the company was liquidated. Interpharm then sued Wells Faro, alleging numerous causes of action including breach of contract and unjust enrichment.
Interpharm's causes of action were based on the theory that it had been forced to agree to the forbearance agreements through economic duress.
As you may recall, New York law provides that a contract may be voided based on economic duress where the "agreement was procured by means of (1) a wrongful threat that (2) precluded the exercise of its free will. See Stewart M. Muller Constr. Co. v. N.Y. Tel. Co., 40 N.Y. 2d 955, 956 (1976). A threat to exercise a legal right cannot constitute economic
duress. See 805 Third Ave. Co. v. M.W. Realty Assocs., 58 N.Y. 2d 447,453 (1983).
After reciting the relevant case law, the Court had little difficulty in affirming the lower court's decision to dismiss Interpharm's claims.
Wells Fargo had the legal right to terminate the line of credit.
Consequently, the Court held that Wells Fargo's threat to do so was not wrongful, and Wells Fargo's insistence that Interpharm execute various agreements to induce Wells Fargo to forbear from terminating the line of credit did not constitute economic duress.
Interpharm advanced two additional arguments. First, Interpharm argued that Wells Fargo's decision to exclude certain receivables from the calculation used to determine the line of credit was not reasonable, within the meaning of a "reasonable discretion" provision in the contract between the parties. Second, Interpharm argued that Wells Fargo purportedly agreed to maintain a higher percentage of receivables for use in that same calculation, an agreement that did not appear in any of the contracts executed by the parties.
The Court rejected both arguments. The agreement between the parties afforded Wells Fargo "reasonable discretion" in determining both the receivables to be used and the percentages of those receivables to be used to determine the amount of money available to Interpharm. The Court found that Interpharm failed to allege any facts to show that that Wells Fargo's decisions fell outside the bounds of "reasonable discretion." Further, the Court held that as the initial agreement and all subsequent forbearance agreements included merger clauses, any purported agreement that did not appear in the written contracts had no bearing on Wells Fargo's contractual rights.
Thus, the Court affirmed the lower court's judgment of dismissal.
Wells Fargo Bank, N.A., ("Wells Fargo") agreed to extend a line of credit to Interpharm, Inc. ("Interpharm"), a drug manufacturer. The line of credit was secured by various assets, including Interpharm's accounts receivable, inventory, and equipment. Interpharm defaulted on the line of credit agreement, and subsequently entered into and defaulted on each of a series of forbearance agreements with Wells Fargo.
Each forbearance agreement included a provision wherein Interpharm released all claims to date against Wells Fargo, as well as a merger clause stating that the written agreement represented the entire agreement between the parties. In addition, one of the forbearance agreements reflected Wells Fargo's decision to exclude certain receivables from the calculation used to determine the amount of money available to Interpharm, as well as to reduce the percentages used for that calculation.
After Interpharm defaulted on the final forbearance agreement, the company was liquidated. Interpharm then sued Wells Faro, alleging numerous causes of action including breach of contract and unjust enrichment.
Interpharm's causes of action were based on the theory that it had been forced to agree to the forbearance agreements through economic duress.
As you may recall, New York law provides that a contract may be voided based on economic duress where the "agreement was procured by means of (1) a wrongful threat that (2) precluded the exercise of its free will. See Stewart M. Muller Constr. Co. v. N.Y. Tel. Co., 40 N.Y. 2d 955, 956 (1976). A threat to exercise a legal right cannot constitute economic
duress. See 805 Third Ave. Co. v. M.W. Realty Assocs., 58 N.Y. 2d 447,453 (1983).
After reciting the relevant case law, the Court had little difficulty in affirming the lower court's decision to dismiss Interpharm's claims.
Wells Fargo had the legal right to terminate the line of credit.
Consequently, the Court held that Wells Fargo's threat to do so was not wrongful, and Wells Fargo's insistence that Interpharm execute various agreements to induce Wells Fargo to forbear from terminating the line of credit did not constitute economic duress.
Interpharm advanced two additional arguments. First, Interpharm argued that Wells Fargo's decision to exclude certain receivables from the calculation used to determine the line of credit was not reasonable, within the meaning of a "reasonable discretion" provision in the contract between the parties. Second, Interpharm argued that Wells Fargo purportedly agreed to maintain a higher percentage of receivables for use in that same calculation, an agreement that did not appear in any of the contracts executed by the parties.
The Court rejected both arguments. The agreement between the parties afforded Wells Fargo "reasonable discretion" in determining both the receivables to be used and the percentages of those receivables to be used to determine the amount of money available to Interpharm. The Court found that Interpharm failed to allege any facts to show that that Wells Fargo's decisions fell outside the bounds of "reasonable discretion." Further, the Court held that as the initial agreement and all subsequent forbearance agreements included merger clauses, any purported agreement that did not appear in the written contracts had no bearing on Wells Fargo's contractual rights.
Thus, the Court affirmed the lower court's judgment of dismissal.
The FDIC Offers Tips on Preparing Financially For a Natural Disaster or a Fire
Hurricane Irene, the earthquake that shook the East Coast and the deadly tornado that hit Joplin, Missouri are recent reminders that disasters rarely give advance warning and can happen anytime. The Summer 2011 issue of FDIC Consumer News features tips on how to prepare financially for a natural disaster, a fire or another tragedy, especially one that requires people to evacuate their home and not return for days or weeks. Other timely topics in the latest issue include what to know before signing up for person-to-person, or “P2P,” electronic payment services using a smartphone or mobile computer; how to solve mysteries of old bank accounts; and an update on new standards for and disclosures by mortgage loan professionals.
The latest issue can be read or printed online at www.fdic.gov/consumers/consumer/news/cnsum11.
The latest issue can be read or printed online at www.fdic.gov/consumers/consumer/news/cnsum11.
Changes to Federal Bankruptcy Rules and Forms
Changes to Federal Bankruptcy Rules and Forms
Effective December 1, 2011
The following changes to and/or new Federal Rules of Bankruptcy Procedure and Official Bankruptcy Forms take effect December 1, 2011:
Rule 1004.2 - Republication of a new rule requiring entity filing a chapter 15 petition to state the country of the debtor’s main interest, filer to list each country in which a case involving debtor is pending, and setting deadline for challenging the statement asserting the country of the debtor’s main interest.
Rule 2003 - Requires the filing of a statement upon adjourning a meeting of creditors or equity security holders.
Rule 2019 - Expands the scope of the rule’s disclosure requirements by requiring disclosure in chapter 9 and 11 cases by all committees or groups that consist of more than one creditor or equity security holder, as well as entities or that represent more than one creditor or equity security holder. It also authorizes the Court to require disclosure by an individual party in interest when knowledge of that party’s economic stake in the debtor would assist the Court in evaluating the party’s arguments.
Rule 3001 - Prescribes in greater detail the support information required to accompany a proof of claim.
Rule 3002.1 - New rule implements § 1323(b)(5) of the Bankruptcy Code which permits a chapter 13 debtor to cure a default and maintain payments of a home mortgage.
Rule 4004 - Permits a party under limited circumstances to seek an extension of time to object to a debtor’s discharge after the time for objecting has expired.
Rule 6003 - Clarifies that the requirement of a 21-day waiting period before a Court can enter certain orders at the beginning of a case, including an order approving employment of counsel, does not prevent the Court from specifying an effective date for the order that is earlier than the date of its issuance.
A complete list of the changes to and/or new Rules (Appellate, Bankruptcy, Criminal and Rules of
Evidence) that take effect December 1, 2011, is located on the U.S. Courts’ web site at:
www.uscourts.gov/RulesAndPolicies/FederalRulemaking/PendingRules/SupremeCourt042611.aspx.
Form 1 (Voluntary Petition) - Implements new Bankruptcy Rule 1004.2.
Forms 9A - 9I (Notices of Bankruptcy Case, Meeting of Creditors & Deadlines *341 Meeting Notice+) -Conforming to amendments to Bankruptcy Rule 2003(e).
Form 10 (Proof of Claim) - Clarifies that, consistent with Rule 3001(c) and new Rule 3002.1, writings supporting a claim or evidencing perfection of a security interest—not just summaries—must be attached to the proof of claim. Three new forms have been created for claims secured by a security interest in the debtor’s principal residence.
Form 10 (Attachment A) - Mortgage Proof of Claim Attachment
Form 10 (Supplement 1) - Notice of Mortgage Payment Change
Form 10 (Supplement 2) - Notice of Postpetition Mortgage Fees, Expenses, and Charges
Form 25A (Plan of Reorganization in Small Business Case under Chapter 11) - Changes the effective date consistent with 2009 time-computation rules amendments.
You may view the proposed forms or obtain more information on the “Bankruptcy Forms
Pending Changes” page of the U.S. Courts’ web site at
http://www.uscourts.gov/FormsAndFees/Forms/BankruptcyForms/BankruptcyFormsPendingChanges.aspx
Effective December 1, 2011
The following changes to and/or new Federal Rules of Bankruptcy Procedure and Official Bankruptcy Forms take effect December 1, 2011:
Rule 1004.2 - Republication of a new rule requiring entity filing a chapter 15 petition to state the country of the debtor’s main interest, filer to list each country in which a case involving debtor is pending, and setting deadline for challenging the statement asserting the country of the debtor’s main interest.
Rule 2003 - Requires the filing of a statement upon adjourning a meeting of creditors or equity security holders.
Rule 2019 - Expands the scope of the rule’s disclosure requirements by requiring disclosure in chapter 9 and 11 cases by all committees or groups that consist of more than one creditor or equity security holder, as well as entities or that represent more than one creditor or equity security holder. It also authorizes the Court to require disclosure by an individual party in interest when knowledge of that party’s economic stake in the debtor would assist the Court in evaluating the party’s arguments.
Rule 3001 - Prescribes in greater detail the support information required to accompany a proof of claim.
Rule 3002.1 - New rule implements § 1323(b)(5) of the Bankruptcy Code which permits a chapter 13 debtor to cure a default and maintain payments of a home mortgage.
Rule 4004 - Permits a party under limited circumstances to seek an extension of time to object to a debtor’s discharge after the time for objecting has expired.
Rule 6003 - Clarifies that the requirement of a 21-day waiting period before a Court can enter certain orders at the beginning of a case, including an order approving employment of counsel, does not prevent the Court from specifying an effective date for the order that is earlier than the date of its issuance.
A complete list of the changes to and/or new Rules (Appellate, Bankruptcy, Criminal and Rules of
Evidence) that take effect December 1, 2011, is located on the U.S. Courts’ web site at:
www.uscourts.gov/RulesAndPolicies/FederalRulemaking/PendingRules/SupremeCourt042611.aspx.
Form 1 (Voluntary Petition) - Implements new Bankruptcy Rule 1004.2.
Forms 9A - 9I (Notices of Bankruptcy Case, Meeting of Creditors & Deadlines *341 Meeting Notice+) -Conforming to amendments to Bankruptcy Rule 2003(e).
Form 10 (Proof of Claim) - Clarifies that, consistent with Rule 3001(c) and new Rule 3002.1, writings supporting a claim or evidencing perfection of a security interest—not just summaries—must be attached to the proof of claim. Three new forms have been created for claims secured by a security interest in the debtor’s principal residence.
Form 10 (Attachment A) - Mortgage Proof of Claim Attachment
Form 10 (Supplement 1) - Notice of Mortgage Payment Change
Form 10 (Supplement 2) - Notice of Postpetition Mortgage Fees, Expenses, and Charges
Form 25A (Plan of Reorganization in Small Business Case under Chapter 11) - Changes the effective date consistent with 2009 time-computation rules amendments.
You may view the proposed forms or obtain more information on the “Bankruptcy Forms
Pending Changes” page of the U.S. Courts’ web site at
http://www.uscourts.gov/FormsAndFees/Forms/BankruptcyForms/BankruptcyFormsPendingChanges.aspx
Ill App Ct Rejects Borrower's Untimely Challenge as to Service of Process
The Illinois Appellate Court for the First District recently held that a borrower or other defendant waives his right to challenge jurisdiction where he files a motion to stay a foreclosure sale without first or simultaneously filing a motion challenging jurisdiction, or moving for an extension of time to do so.
A copy of the opinion is available at:
http://www.state.il.us/court/Opinions/AppellateCourt/2011/1stDistrict/Sept
ember/1102632.pdf
Plaintiff Deutsche Bank National Trust Company ("Deutsche Bank") filed a mortgage foreclosure action against defendants Carolyn A. Hall-Pilate and John J. Pilate. The special process server executed two returns of service indicating that John was served with a summons and complaint for himself and on behalf of his wife, Carolyn.
When the borrowers did not appear and answer, Deutsche Bank filed a motion for default. The trial court continued the motion on March 18, 2008, because John Pilate had appeared pro se before the court and requested time to consult with an attorney. The borrowers were granted 28 days to file an appearance and answer or otherwise plead to the complaint.
After the borrowers still failed to file an appearance or response to the complaint, the trial court granted Deutsche Bank's motion for default judgment, and entered orders appointing a foreclosure sale officer and for judgment for foreclosure and sale. Deutsche Bank filed a motion for an order approving the report of sale and distribution following the judicial sale.
On September 12, 2008, an "additional" appearance was filed by a law firm, as counsel for the borrowers. The law firm also filed an emergency motion to stay approval of the property sale. The trial court denied the borrowers' emergency motion for a stay, and entered an order approving the report of sale and distribution, confirming the sale and order of possession.
On May 29, 2009, the borrowers filed a motion to quash service through new counsel, asserting that John was out of state when the service of process allegedly occurred. The trial court denied the motion to quash service.
On appeal, the borrowers argued that the trial court erred in denying their motion to quash service because the borrowers did not file any appearance or other pleadings prior to the entry of the default judgment.
Deutsche Bank argued that the borrowers waived their jurisdictional objections when they filed their emergency motion to stay the approval of a judicial sale prior to final judgment in the case.
The Appellate Court noted that section 2-301 of the Illinois Code of Civil Procedure governs challenges to personal jurisdiction. The court held that "[u]nder section 2-301, an objection to the court's jurisdiction must be raised in the first pleading or motion filed, other than a motion for an extension of time to answer or otherwise appear, but such objection may be raised alongside other motions seeking relief on different grounds."
The Court noted that the borrowers "did not comply with the requirements of section 2-301 to preserve their objection to the trial court's jurisdiction because they filed a motion to stay the approval of the property sale without also challenging the court's jurisdiction." In addition, the Court ruled that "by participating in the case without raising an objection to personal jurisdiction," the borrowers "voluntarily submitted to the trial court's jurisdiction and waived any objection."
The borrowers also asserted that any waiver of personal jurisdiction did not apply to Carolyn because she did not appear at the initial hearing.
However, the court was "not persuaded as the relevant action by the defendants was the filing of the emergency motion for a stay which was filed on behalf of both defendants. Thus, [Carolyn], with her husband, sought relief from the trial court and waived any challenge to personal jurisdiction."
The Court held that "[s]ince defendants in the instant case appeared in this case before a final judgment was entered against them by filing a motion seeking relief from the trial court and recognizing its jurisdiction, defendants waived all objections to the trial court's jurisdiction."
A copy of the opinion is available at:
http://www.state.il.us/court/Opinions/AppellateCourt/2011/1stDistrict/Sept
ember/1102632.pdf
Plaintiff Deutsche Bank National Trust Company ("Deutsche Bank") filed a mortgage foreclosure action against defendants Carolyn A. Hall-Pilate and John J. Pilate. The special process server executed two returns of service indicating that John was served with a summons and complaint for himself and on behalf of his wife, Carolyn.
When the borrowers did not appear and answer, Deutsche Bank filed a motion for default. The trial court continued the motion on March 18, 2008, because John Pilate had appeared pro se before the court and requested time to consult with an attorney. The borrowers were granted 28 days to file an appearance and answer or otherwise plead to the complaint.
After the borrowers still failed to file an appearance or response to the complaint, the trial court granted Deutsche Bank's motion for default judgment, and entered orders appointing a foreclosure sale officer and for judgment for foreclosure and sale. Deutsche Bank filed a motion for an order approving the report of sale and distribution following the judicial sale.
On September 12, 2008, an "additional" appearance was filed by a law firm, as counsel for the borrowers. The law firm also filed an emergency motion to stay approval of the property sale. The trial court denied the borrowers' emergency motion for a stay, and entered an order approving the report of sale and distribution, confirming the sale and order of possession.
On May 29, 2009, the borrowers filed a motion to quash service through new counsel, asserting that John was out of state when the service of process allegedly occurred. The trial court denied the motion to quash service.
On appeal, the borrowers argued that the trial court erred in denying their motion to quash service because the borrowers did not file any appearance or other pleadings prior to the entry of the default judgment.
Deutsche Bank argued that the borrowers waived their jurisdictional objections when they filed their emergency motion to stay the approval of a judicial sale prior to final judgment in the case.
The Appellate Court noted that section 2-301 of the Illinois Code of Civil Procedure governs challenges to personal jurisdiction. The court held that "[u]nder section 2-301, an objection to the court's jurisdiction must be raised in the first pleading or motion filed, other than a motion for an extension of time to answer or otherwise appear, but such objection may be raised alongside other motions seeking relief on different grounds."
The Court noted that the borrowers "did not comply with the requirements of section 2-301 to preserve their objection to the trial court's jurisdiction because they filed a motion to stay the approval of the property sale without also challenging the court's jurisdiction." In addition, the Court ruled that "by participating in the case without raising an objection to personal jurisdiction," the borrowers "voluntarily submitted to the trial court's jurisdiction and waived any objection."
The borrowers also asserted that any waiver of personal jurisdiction did not apply to Carolyn because she did not appear at the initial hearing.
However, the court was "not persuaded as the relevant action by the defendants was the filing of the emergency motion for a stay which was filed on behalf of both defendants. Thus, [Carolyn], with her husband, sought relief from the trial court and waived any challenge to personal jurisdiction."
The Court held that "[s]ince defendants in the instant case appeared in this case before a final judgment was entered against them by filing a motion seeking relief from the trial court and recognizing its jurisdiction, defendants waived all objections to the trial court's jurisdiction."
9th Cir Rejects MERS Challenge, Rejects Equitable Tolling Theory Based on Spanish-Language Negotiations, Rejects Borrowers' IIED Claim
The U.S. Court of Appeals for the Ninth Circuit recently ruled in favor of Mortgage Electronic Registration Systems, Inc. ("MERS") in a putative class action challenging the MERS system under common law fraud and state UDAP theories.
The Court also rejected the borrowers' equitable tolling argument as to the TILA and state UDAP statute of limitations, based upon the borrowers speaking only Spanish but their loan documents being only in English. In addition, the Court held that providing an unaffordable loan to a borrower was not "extreme and outrageous" as is required to state a claim for intentional infliction of emotional distress.
A copy of the opinion is available at:
http://www.ca9.uscourts.gov/datastore/opinions/2011/09/07/09-17364.pdf
The three named plaintiffs in the case obtained home loans or refinanced existing loans in 2006. The plaintiffs each executed a deed of trust in favor of their lender, naming MERS as the "beneficiary" and as the "nominee" for the lender and lender's "successors and assigns." The plaintiffs do not speak or read English, and negotiated the mortgage loans with their lenders in Spanish, but were provided with, and signed, copies of their loan documents written in English.
The plaintiffs subsequently defaulted on their loans. Following default, their respective lenders appointed trustees to initiate nonjudicial foreclosure proceedings. MERS's beneficial interests in the deeds of trust were all assigned to a foreclosure trustee.
The plaintiffs filed their putative class action, alleging conspiracy by their lenders and others to use MERS to commit fraud. They also alleged that their lenders violated the federal Truth in Lending Act ("TILA"), and the Arizona Consumer Fraud Act ("ACFA"), and committed the tort of intentional infliction of emotional distress ("IIED") by supposedly targeting the plaintiffs for loans they allegedly could not repay when the loans were extended.
The trial court dismissed the plaintiffs' first amended complaint, without leave to amend. Further, the trial court denied leave to file a proposed second amended complaint, and to add a new claim for wrongful foreclosure.
On appeal, the plaintiffs only addressed the district court's: (1) dismissal of their claim for conspiracy to commit fraud through the MERS system; (2) failure to address their oral request for leave to add a wrongful foreclosure claim; (3) dismissal of the foreclosure trustee from the suit; (4) denial of leave to amend their pleadings regarding equitable tolling of their TILA and ACFA claims; and (5) dismissal of their claim for IIED.
On appeal, the Ninth Circuit noted that the main premise of the plaintiffs' lawsuit was that the MERS system impermissibly "splits" the note and deed of trust by facilitating the transfer of the beneficial interest in the loan among lenders while maintaining MERS as the nominal holder of the deed. The Ninth Circuit rejected this theory.
The plaintiffs' lawsuit was also premised on the fact that MERS does not have a financial interest in the loans, which, according to the plaintiffs, renders MERS's status as a beneficiary a sham. The Ninth Circuit rejected this theory, also.
With respect to the conspiracy to commit fraud claim, the plaintiffs alleged that MERS members conspired to commit fraud by using MERS as a sham beneficiary, supposedly promoting and facilitating predatory lending practices through the use of MERS, and supposedly making it impossible for borrowers or regulators to track the changes in lenders.
In upholding the lower court's ruling that the plaintiffs failed to state a cause of action, the Ninth Circuit held "[t]he plaintiffs' allegations fail to address several of [the] necessary elements for a fraud claim."
Specifically, the plaintiffs failed to identify any false representations made to them about the MERS system, and failed to allege they relied on misrepresentations about MERS in deciding to enter into their home loans.
Moreover, the Ninth Circuit found the plaintiffs' allegations were undercut by the language in the standard deed of trust, which provided that MERS was acting "solely as a nominee for Lender and Lender's successors and assigns" and holds "only legal title to the interest granted by Borrower in this Security Instrument." The Court held that "[b]y signing the deeds of trust, the plaintiffs agreed to the terms and were on notice of the contents." The Court further held that "[i]n light of the explicit terms of the standard deed. . ., it does not appear that the plaintiffs were misinformed about MERS's role in their home loans."
With respect to the wrongful foreclosure claim, the Ninth Circuit held that "[t]he plaintiffs' oral request to add a wrongful foreclosure claim was procedurally improper and substantively unsupported." The plaintiffs based their wrongful foreclosure claim on the novel theory that "all transfers of the interests in the home loans within the MERS system are invalid because the designation of MERS as a beneficiary is a sham and the system splits the deed from the note, and, thus, no party is in a position to foreclose."
The Court rejected this argument, holding "[e]ven if MERS were a sham beneficiary, the lenders would still be entitled to repayment of the loans and would be the proper parties to initiate foreclosure after the plaintiffs defaulted on their loans." The Court further held that "the notes and deeds are not irreparably split: the split only renders the mortgage unenforceable if MERS or the trustee, as nominal holders of the deeds, are not agents of the lenders."
With respect to the allegations against the foreclosure trustee, the Court noted the only allegations the plaintiffs directed against the foreclosure trustee was that the trustee supposedly "failed to recognize that its appointment was invalid." The Ninth Circuit held the plaintiffs failed to state a cause of action, because the trustee had an "'absolute right' under Arizona law 'to rely upon any written direction or information furnished to him by the beneficiary.'"
The plaintiffs also asserted that the district court failed to address the equitable tolling of their purported claims under TILA and the ACFA. The plaintiffs alleged their TILA claim should have been tolled because they only speak Spanish, but received their loan documents in English. The Court disagreed, finding "the plaintiffs have not alleged circumstances beyond their control that prevented them from seeking a translation of the loan documents that they signed and received."
Further, the Court also held that the plaintiffs failed to state a claim for equitable estoppel because they "failed to specify what true facts are at issue, or to establish that the alleged misrepresentation and concealment of facts is 'above and beyond the wrongdoing' that forms the basis for their TILA and [ACFA] claims."
Finally, with respect to the IIED allegations, the Ninth Circuit held the plaintiffs failed to state a cause of action because they "essentially allege that the lenders offered them loans that the lenders knew they could not repay," which was not "extreme and outrageous" as is required to state a claim for IIED.
The Court also rejected the borrowers' equitable tolling argument as to the TILA and state UDAP statute of limitations, based upon the borrowers speaking only Spanish but their loan documents being only in English. In addition, the Court held that providing an unaffordable loan to a borrower was not "extreme and outrageous" as is required to state a claim for intentional infliction of emotional distress.
A copy of the opinion is available at:
http://www.ca9.uscourts.gov/datastore/opinions/2011/09/07/09-17364.pdf
The three named plaintiffs in the case obtained home loans or refinanced existing loans in 2006. The plaintiffs each executed a deed of trust in favor of their lender, naming MERS as the "beneficiary" and as the "nominee" for the lender and lender's "successors and assigns." The plaintiffs do not speak or read English, and negotiated the mortgage loans with their lenders in Spanish, but were provided with, and signed, copies of their loan documents written in English.
The plaintiffs subsequently defaulted on their loans. Following default, their respective lenders appointed trustees to initiate nonjudicial foreclosure proceedings. MERS's beneficial interests in the deeds of trust were all assigned to a foreclosure trustee.
The plaintiffs filed their putative class action, alleging conspiracy by their lenders and others to use MERS to commit fraud. They also alleged that their lenders violated the federal Truth in Lending Act ("TILA"), and the Arizona Consumer Fraud Act ("ACFA"), and committed the tort of intentional infliction of emotional distress ("IIED") by supposedly targeting the plaintiffs for loans they allegedly could not repay when the loans were extended.
The trial court dismissed the plaintiffs' first amended complaint, without leave to amend. Further, the trial court denied leave to file a proposed second amended complaint, and to add a new claim for wrongful foreclosure.
On appeal, the plaintiffs only addressed the district court's: (1) dismissal of their claim for conspiracy to commit fraud through the MERS system; (2) failure to address their oral request for leave to add a wrongful foreclosure claim; (3) dismissal of the foreclosure trustee from the suit; (4) denial of leave to amend their pleadings regarding equitable tolling of their TILA and ACFA claims; and (5) dismissal of their claim for IIED.
On appeal, the Ninth Circuit noted that the main premise of the plaintiffs' lawsuit was that the MERS system impermissibly "splits" the note and deed of trust by facilitating the transfer of the beneficial interest in the loan among lenders while maintaining MERS as the nominal holder of the deed. The Ninth Circuit rejected this theory.
The plaintiffs' lawsuit was also premised on the fact that MERS does not have a financial interest in the loans, which, according to the plaintiffs, renders MERS's status as a beneficiary a sham. The Ninth Circuit rejected this theory, also.
With respect to the conspiracy to commit fraud claim, the plaintiffs alleged that MERS members conspired to commit fraud by using MERS as a sham beneficiary, supposedly promoting and facilitating predatory lending practices through the use of MERS, and supposedly making it impossible for borrowers or regulators to track the changes in lenders.
In upholding the lower court's ruling that the plaintiffs failed to state a cause of action, the Ninth Circuit held "[t]he plaintiffs' allegations fail to address several of [the] necessary elements for a fraud claim."
Specifically, the plaintiffs failed to identify any false representations made to them about the MERS system, and failed to allege they relied on misrepresentations about MERS in deciding to enter into their home loans.
Moreover, the Ninth Circuit found the plaintiffs' allegations were undercut by the language in the standard deed of trust, which provided that MERS was acting "solely as a nominee for Lender and Lender's successors and assigns" and holds "only legal title to the interest granted by Borrower in this Security Instrument." The Court held that "[b]y signing the deeds of trust, the plaintiffs agreed to the terms and were on notice of the contents." The Court further held that "[i]n light of the explicit terms of the standard deed. . ., it does not appear that the plaintiffs were misinformed about MERS's role in their home loans."
With respect to the wrongful foreclosure claim, the Ninth Circuit held that "[t]he plaintiffs' oral request to add a wrongful foreclosure claim was procedurally improper and substantively unsupported." The plaintiffs based their wrongful foreclosure claim on the novel theory that "all transfers of the interests in the home loans within the MERS system are invalid because the designation of MERS as a beneficiary is a sham and the system splits the deed from the note, and, thus, no party is in a position to foreclose."
The Court rejected this argument, holding "[e]ven if MERS were a sham beneficiary, the lenders would still be entitled to repayment of the loans and would be the proper parties to initiate foreclosure after the plaintiffs defaulted on their loans." The Court further held that "the notes and deeds are not irreparably split: the split only renders the mortgage unenforceable if MERS or the trustee, as nominal holders of the deeds, are not agents of the lenders."
With respect to the allegations against the foreclosure trustee, the Court noted the only allegations the plaintiffs directed against the foreclosure trustee was that the trustee supposedly "failed to recognize that its appointment was invalid." The Ninth Circuit held the plaintiffs failed to state a cause of action, because the trustee had an "'absolute right' under Arizona law 'to rely upon any written direction or information furnished to him by the beneficiary.'"
The plaintiffs also asserted that the district court failed to address the equitable tolling of their purported claims under TILA and the ACFA. The plaintiffs alleged their TILA claim should have been tolled because they only speak Spanish, but received their loan documents in English. The Court disagreed, finding "the plaintiffs have not alleged circumstances beyond their control that prevented them from seeking a translation of the loan documents that they signed and received."
Further, the Court also held that the plaintiffs failed to state a claim for equitable estoppel because they "failed to specify what true facts are at issue, or to establish that the alleged misrepresentation and concealment of facts is 'above and beyond the wrongdoing' that forms the basis for their TILA and [ACFA] claims."
Finally, with respect to the IIED allegations, the Ninth Circuit held the plaintiffs failed to state a cause of action because they "essentially allege that the lenders offered them loans that the lenders knew they could not repay," which was not "extreme and outrageous" as is required to state a claim for IIED.
Mortgage rates hit lows
Freddie Mac now puts the average rate for a 30-year fixed mortgage at 4.12 percent and the 15-year rate at 3.33 percent
Freddie Mac Rolls Out New Standard Modification
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1116.pdf
The Standard Modification replaces Freddie Mac’s classic modification, which is a debt coverage ratio mod, and is part of the Servicing Alignment Initiative underway to bring the two GSEs’ protocol for handling defaulted loans in line with one another.
Freddie Mac says the new formula will help servicers simplify underwriting by using a standard set of modification terms, including a 5 percent interest rate, for all eligible borrowers.
The new Standard Modification is available to borrowers who don’t qualify for the government’s Home Affordable Modification Program (HAMP), and includes a trial period to help ensure borrowers can sustain their modified mortgage payments and reduce re-default rates in servicers’ Freddie Mac portfolios
The Standard Modification replaces Freddie Mac’s classic modification, which is a debt coverage ratio mod, and is part of the Servicing Alignment Initiative underway to bring the two GSEs’ protocol for handling defaulted loans in line with one another.
Freddie Mac says the new formula will help servicers simplify underwriting by using a standard set of modification terms, including a 5 percent interest rate, for all eligible borrowers.
The new Standard Modification is available to borrowers who don’t qualify for the government’s Home Affordable Modification Program (HAMP), and includes a trial period to help ensure borrowers can sustain their modified mortgage payments and reduce re-default rates in servicers’ Freddie Mac portfolios
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