Mortgages

A New Jersey trial judge allows foreclosure to proceed even though the bank cannot produce the mortgage note

/ Mortgages, Statute of Frauds

A bank lost the mortgage note and thus could not pass it along when it assigned the mortgage to the Bank of America, preventing the Bank of America from producing the note to prove that it had the right to foreclose on the property. The loan in question had been securitized and transferred from the original mortgagee, Washington Mutual Bank, to LaSalle Bank (the holder of the securitized and pooled loans) which was then acquired by Bank of America. Because Bank of America could show evidence of the assignment (but not written proof of the original mortgage), the trial court allowed it to foreclose on the ground that the mortgagor/homeowner would otherwise be unjustly enriched. In effect, the court used equitable principles to create an exception to the applicable statute of frauds which requiring a writing for the mortgage to be enforceable via foreclosure. The case is Bank of America, N.A. …

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Invalid foreclosure cannot be cured by quiet title action

/ Mortgages, Real Estate Transactions, Title Issues

In the case of Bevilacqua v. Rodriguez, 2010 WL 3351481 (Mass. Land Ct. 2010), the court held that parties cannot cure an invalid foreclosure by a quiet title action.The bank that brought the foreclosure action had no proof at the time of the foreclosure that it owned the mortgage (the right to foreclose) because it had no written assignment from the prior mortgagee. For that reason, the foreclosure was invalid under the rule adopted by the Supreme Judicial Court of the Commonwealth of Massachusetts in U.S. Bank National Ass’n v. Ibañez, 458 Mass. 637 (2011). Ibañez held that foreclosures are invalid if the mortgagee bringing the foreclosure action cannot (at the time the foreclosure action) produce a written document proving that it was assigned the benefit of the mortgage from the prior mortgage holder. Thus when the bank sought a declaratory judgment that the foreclosure was valid, the court rejected its claim. …

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Court finds credit card interest rate above 18% to be unconscionable

/ Mortgages

A trial judge in Massachusetts has ruled in Citibank (South Dakota) v. DeCristoforo, (Mass. Super. Ct. 2011), 39 Mass. Lawyers Weekly 1 (Jan. 19, 2011), that a South Dakota based credit card company’s interest rates above 18 percent charged to a defaulting credit card borrower in Massachusetts were unconscionable. The judge applied Massachusetts common law to protect the borrower from interest rates deemed to be onerous even though the bank that issued the credit card was located in another state whose law would have allowed the interest rate. The contract presumably contained a choice-of-law clause for South Dakota law and if such a clause were in the contract, the judge overrode it in deciding to apply Massachusetts law to protect a Massachusetts domiciliary. The case is of interest because it may be used as precedent in subprime mortgage case involving borrowing from out-of-state banks.

New Jersey Supreme Court may stop all foreclosures in the state

/ Mortgages, Statute of Frauds

The Supreme Court of New Jersey has issued an order setting a hearing for January 19, 2011, asking all mortgage loan servicers in the state to explain why the state should not stop all foreclosures for irregularities. A lower court judge had issued a more limited administrative order involving loan servicers who had filed more than 200 foreclosure actions in 2010. The Supreme Court is concerned about recent disclosure of serious flaws in recent foreclosures, especially since most foreclosures in the state are uncontested.

No standing to foreclose without proof of physical possession of the note at the time the foreclosure claim was brought

/ Mortgages

A New Jersey trial court has held that a lender cannot bring a foreclosure action unless it can prove standing to sue. That requires proof that it owns the note and the mortgage giving it the power to foreclose on the property to pay off the debt evidenced by the note. Physical possession of the note is required at the time the foreclosure action is filed; possession at the time of appeal was not sufficient to allow the foreclosure to go forward. Bank of New York v. Raftogianis, F-7356-09 (N.J. Super. Ct. Ch. Div. 2010).

Banks stop foreclosures because of flaws in proof of standing

/ Mortgages, Statute of Frauds

Three large lenders, GMAC Mortgage, JPMorgan Chase, and Bank of America, have all suspended foreclosures because of irregularities in documents used to proof that they are entitled to foreclose. Various newspaper articles have talked about “technical” problems or “paperwork” problems but the real issue is that banks have obligations to prove they “own” the mortgage and have a right to foreclose, at least in states that require court proceedings for foreclosure. The problem is that many lenders did not keep accurate written records of all the assignments of these mortgages. The statute of frauds in every state requires mortgages to be in writing and some states require them to be recorded. In lieu of providing a paper trail, some lenders have provided courts with affidavits that swear that the signing party has seen proof that the lender owns the mortgage and is entitled to foreclose. But some of the affiants …

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New Massachusetts law protects rent-paying tenants from being evicted from foreclosed property

/ Leaseholds, Mortgages

Assuming Governor Deval Patrick signs the law, the Massachusetts legislature just passed a statute called “An Act to Stabilize Neighborhoods” that protects tenants from being evicted from property after foreclosure as long as they are paying the rent. Tenants can be evicted if the property is being sold to a third party, but if the lender buys the property at foreclosure, it must continue renting to the tenant–and complying the landlord’s obligations under state law to provide habitable housing. The law also requires lenders to have at least one meeting with the defaulting borrower to try to work in good faith to negotiate a new arrangement; this must happen before the bank forecloses on the property. If the lender does not do this, it must wait an extra two months before beginning foreclosure proceedings.  The bill also criminalizes mortgage fraud. read article

Mass. Attorney General agrees to a settlement with Countrywide Financial Corp. reducing principal amounts owed by borrowers by as much as 30 percent

/ Mortgages

Litigation concerning subprime mortgages granted by Countrywide Financial Corp. (now owned by Bank of America) has been settled in Massachusetts. Attorney General Martha Coakley obtained agreement to lower the principal amount owed by borrowers whose properties are worth less than the outstanding debt (so-called “under water properties”) by as much as 30 percent. Some borrowers who lost their homes through foreclosure of such mortgages may get some compensation from a $2.4 million fund set up for that purpose. The agreement will provide about $18 million in mortgage help for Massachusetts homeowners and it  is part of a wider nationwide settlement that will provide about $3 billion to 45,000 homeowners across the nation. The settlement builds on a 2008 agreement between Bank of America and numerous state attorneys general to provide loan modifications for certain borrowers. read article

Another N.Y. court refuses to grant a foreclosure when the bank failed to follow strict procedures to prove it owned the note

/ Mortgages

Another judge has refused to grant a foreclosure when  the bank could not prove that it validly acquired the mortgage by assignment from the original mortgagee. Deutsche Bank Nat. Trust Co. v. McRae, 894 N.Y.S.2d 720 (Sup. Ct. 2010). The court emphasized that foreclosure actions can only be brought by those who have title when the action is commenced and that mortgages can be assigned in two ways—by delivery of the note and mortgage by the assignor to the assignee with the intent to assign or by a written instrument of  assignment. The written assignment in this case was insufficient because it assigned the mortgage but not the note (the underlying contractual obligation). The plaintiff sought to introduce evidence of a note that was endorsed by the assignor with notice of assignment. However, the assignment was not dated and conflicted with the unsigned note attached to the plaintiff’s foreclosure  complaint, leading …

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Massachusetts SJC finds potential consumer protection law violation in case of subprime mortgages

/ Mortgages

In Commonwealth v. Fremont Investment & Loan, 897 N.E.2d 548 (Mass. 2008), the highest state court in Massachusetts allowed the Attorney General to move forward on a claim that adjustable rate mortgages violated the state consumer protection act as “unfair or deceptive” practices when the borrowers’ incomes were not high even to allow them to afford to pay the higher interest rates. Granting mortgages on the assumption that the borrower would refinance at that point or the lender would foreclose assumed that the lender was entitled to base the security for the loan on the projected increase in market value of the collateral rather than the borrower’s ability to pay. The court allowed the claim to go forward even though the loans at issue did not constitute predatory loans as defined by state law.

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