Wednesday, July 06, 2011

Foreclosing Lender's Failure To Serve Junior Lienholder Leaves Latter With Major Windfall

A recent ruling by the Indiana Supreme Court may be of some interest to title agents and examiners (who are already in the unenviable position of being expected to insure title to homes that have a foreclosure judgment and foreclosure deed in its chain of title), and to some real estate operators (those who profitably dabble in the "trafficking" of seemingly worthless junior liens on properties in foreclosure).

In a nutshell:

  • A mortgage holder foreclosed its mortgage, took title to the subject property at a sheriff's sale, and then sold the property to a third party;


  • The foreclosing mortgagee subsequently discovered it had inadvertently failed to name a junior lienholder in the foreclosure action.


  • The foreclosing mortgagee then went back into court and got the judge to order the junior lienholder to either redeem its interest by paying off the foreclosing mortgagee or lose its lien foreever.


  • The junior lienholder appealed, and the Indiana Court of Appeals reversed.(1)


  • On review, the Indiana Supreme Court, while disagreeing with the legal reasoning employed by the Court of Appeals, reached the same end result.


  • It essentially said that the foreclosing lender's failure to name the junior lienholder in the foreclosure action without a good reason to explain the omission allows the latter's lien on the property both to:

    a) survive, and
    b) move up in priority with respect to its claim on the foreclosed property.

  • The state high court stated that, given the facts of the case, the equitable remedy of strict foreclosure / reforeclosure was unavailable to the foreclosing mortgagee, and the doctrine of merger was applicable.(2)
  • (which operated to obliterate any claim of priority that the senior (foreclosing) mortgagee may have had over the junior lienholder).

  • Consequently, the foreclosing mortgagee was stuck with a property encumbered by the debt secured by the junior lien.(3)

For the ruling, see Citizens State Bank of New Castle v. Countrywide Home Loans, Inc., No. 76S03-1009-CV-515 (Ind. June 29, 2011).

(1) Citizens State Bank of New Castle v. Countrywide Home Loans, Inc., 922 N.E.2d 655 (Ind. Ct. App. 2010).

See also, Sloppy Service, Subsequent Title Transfer In Foreclosure Process Leaves Lender Holding The Bag On $111K+ Error.

(2) However, in the following excerpt from the ruling, the state high court added that had there been no screw-up on the part of the foreclosing mortgagee in naming the junior lienholder in the foreclosure action, the result in this case may have been different (bold text is my emphasis, not in the original text):

  • We hasten to add that although the mortgagee's intent is the primary consideration in determining whether a merger has occurred, there may be circumstances under which the equitable remedy of strict foreclosure may nonetheless be appropriate.

    For example, this is not a case in which a junior lienholder was not joined in the foreclosure action because of an indexing error resulting in the lien not appearing in the court records. See U.S. Bank of Wash. v. Hursey, 806 P.2d 245, 247 (Wash. 1991) (declaring that a "reforeclosure" was appropriate where a junior lienholder was omitted from a foreclosure action because of indexing error by the court clerk's office).

    Were such facts before us, then the outcome of this case very well may have been different.

    Instead, the record is clear that Citizen Bank's lien on the property was properly recorded and indexed. Other than essentially declaring mistake or inadvertence Countrywide does not explain why the lien was overlooked. In sum, Countrywide has failed to demonstrate that it is entitled to the remedy of strict foreclosure.

(3) It is undeniable that there are plenty of junior lienholders that have ostensibly been foreclosed by the owner/holder of a superior 1st mortgage. If the junior lienholder was not served in the foreclosure action, this case appears to state that the junior lienholder will score a windfall.

Further, if there was "sloppy" service attempted on the junior lienholder that was so ineffectual so as to render it void (or at least voidable), this ruling may support the same proposition, although the court did not specifically address the issue of defective service of process.

One thing is clear, however:

  • title examiners, agents, insurers (at least in Indiana, and possibly elsewhere) have one more issue to sweat about when underwriting a title insurance policy on a foreclosed property,

  • buyers of homes that have a foreclosure sale in their chains of title have one more source of possible surprise and chagrin, and

  • clever real estate operators who seek out and buy junior liens (usually at a steep discount) may have found one more potentially profit-pocketing opportunity available to them.

Foreclosure Mill Sweatshop Attorneys, Robosigner Notaries Dodge Grilling After 'Behind Closed Doors' Baltimore Court Hearing Yields Nine Dismissals

In Baltimore, Maryland, The Daily Record reports:
  • Until last Monday, hearings on signature irregularities in foreclosure filings in Baltimore City Circuit Court have made for surprisingly good courtroom drama. Special Master Elizabeth A. Ritter, a former prosecutor, has asked tough questions about practices and processes at three local law firms, and the lawyers on the stand have either conceded mistakes or faced further grilling.


  • Perhaps having read about their predecessors' experiences, the Baltimore firm of Wittstadt & Wittstadt P.A. took a different tack last week. The Wittstadt brothers and their lawyer, along with the firm's support staff and their lawyer, showed up in Judge W. Michel Pierson's third-floor courtroom in the morning and, after identifying themselves on the record, consented to moving the whole proceeding behind closed doors.


  • According to a video recording of the proceeding, before he left the courtroom, Michael Pate turned to his clients, the notaries, and said, "Watch my stuff, please. If something happens we're all in trouble, OK? You guys more than me."


  • But all that happened during the next few minutes, according to court records filed thereafter, was the firm agreed to dismiss nine of the 10 cases in question, and Judge Pierson agreed to dismiss the show cause order in the other.


  • There would be no cross-examination of veteran attorneys this time, no notaries invoking their Fifth Amendment rights.


  • The Wittstadt firm seemed to have fared better than firms like Shapiro & Burson LLC or Friedman & MacFadyen P.A., but they were in no mood to talk about it as they left the courthouse. The Wittstadts' attorney, Timothy M. Gunning, identified himself but would not say whom he represented. Gerard W. Wittstadt introduced himself as "Mickey Mouse."

Source: Baltimore firm dismisses nine foreclosure filings (requires subscription; if no subscription, GO HERE).

NJ Lawmakers Overwhelmingly Pass Bill Targeting Sale Leaseback Equity Stripping Peddlers, Other F'closure Rescue Operators; Awaits Governor's Sign-Off

The Star-Ledger reports:
  • They call themselves "foreclosure rescue" companies, but in many cases they end up enriching themselves while destroying whatever credit-worthiness a distressed homeowner has.


  • A bill to regulate the industry overwhelmingly passed both the state Senate and Assembly last week and housing and foreclosure experts said it will at least bring some relief to the already daunting task of helping people stay in their homes.


  • "It’s some of the most egregious kind of predatory lending, the foreclosure rescues," said Peggy Jurow, who leads the Foreclosure Defense Initiative at Legal Services of New Jersey.(1) She said it can take years to help victims sort through the complicated mass of subsequent lawsuits and paperwork, even if the consultant has been jailed.

***

  • Gov. Chris Christie has not taken a public position on the bill and has 45 days from June 29, when it passed, to review its contents before taking action, said spokesman Kevin Roberts.

For more, see N.J. Legislature bill would regulate foreclosure rescue fraud, offer relief to distressed homeowners.

(1) Legal Services of New Jersey coordinates the statewide Legal Services system, which provides free legal assistance to low-income New Jerseyans for their civil legal problems.

Arizona Feds Bag Suspected Vacant Foreclosed Home Hijacker On Unrelated Charges Of Filing False Bankruptcy Claims While Promising Foreclosure Rescue

In Tucson, Arizona, KVOA-TV Channel 4 reports:
  • A former mayoral candidate and self-proclaimed "sovereign citizen" has been arrested for false claims in bankruptcy stemming from a website he operated claiming he could make the foreclosure process stop.


  • According to a release from Dennis Burke, U.S. Attorney for the District of Arizona, Marshall E. Home, 81, is facing a criminal complaint charging him with two counts of false claims in bankruptcy.


  • According to the complaint, Home operated the "Individual Rights Party; Mortgage Rescue Service," and would charge individuals in foreclosure proceedings $500 to make the process stop.(1) The complaint alleges that Home believes Congress does not have the authority to make laws binding to anyone outside the District of Columbia and federal territories, under the U.S. Constitution. The complaint also alleges that in March, Home falsely told the Bankruptcy Court that he had a $3 billion financial claim against the United States, then went on to file 173 more false claims relating to individuals participating in his "Mortgage Rescue Service."


  • The complaint says these claims totaled over $2.5 trillion dollars - the two counts in the criminal complaint involve claims of $2.5 billion and $50 million. "The anti-government paranoia of so-called ‘sovereign citizens' becomes a self-fulfilling prophecy when they use their false claims and fraudulent practices to rip-off others," said U.S. Attorney Dennis K. Burke. "We will continue to work with our law enforcement partners to pursue and prosecute those who make false claims against the government to cover for their wrongdoing."

For the story, see Former mayoral candidate arrested for false bankruptcy claims.

(1) In addition to his alleged antics filing dubious documents in bankruptcy court, the 81-year old Home also appears to have a career as a self-employed vacant foreclosed home hijacker. See Fringe Tucson Mayoral Candidate Goes On 'Home' Hijacking Spree, Staking Claims To Vacant Fannie-Owned REOs Throughout Metro Phoenix.

Tuesday, July 05, 2011

Ongoing NY Civil Litigation Triggered By Now-Convicted Crook's $8M Home Equity Refinance Swindle May Leave Lenders Liable For 21 L.I. Families' Losses

In Nassau County, Long Island, The New York Times reports:
  • HOLDING banks accountable for all those disastrous mortgages has been remarkably difficult. But last week, a big bank agreed to pay a price: Bank of America announced that it would part with $8.5 billion to settle claims that its Countrywide Financial unit had packaged garbage loans into investments that were said to be safe.


  • That is good news for investors, as these things go. But another, lesser-known case now winding its way through the courts may help others recover losses from lenders who dealt in risky mortgages and claimed that they had no duty to their customers.


  • The case involves 21 families on Long Island and a convicted swindler named Peter J. Dawson. Mr. Dawson, a self-described financial planner, stole roughly $8 million from his clients, among them elderly parishioners at his church in Uniondale, N.Y. He pleaded guilty in state court in December 2007 and is serving 5 to 15 years in prison.


  • What does this have to do with mortgage lenders? Home loans were central to Mr. Dawson’s theft. He persuaded people who had paid off all or much of their mortgages to take out new home loans and entrust him with the proceeds. He promised to pay off their new loans with income from investments. Instead, he absconded with their money. Many of his victims lost their life savings and now cannot afford to pay off the mortgages.

For more, see The Swindler and the Home Loans.

See Hennessy v. Dawson, No. 19368/06 (NY Sup. Ct. Suffolk Cty., May 20, 2011) for a 21-page trial court ruling detailing the allegations and allowing the case against the banksters to continue.

More Mortgage Servicer Horror Stories; Screw-Ups Lead To Foreclosure Threats, Ruined Credit For Homeowners Who Never Missed Payments

In Lutherville, Maryland, The Baltimore Sun reports:
  • Anca Safta never missed a payment on her loan to expand her Lutherville home. But that didn't stop Safta's mortgage servicer from citing her this year for failing to pay, reporting her to credit agencies and threatening to foreclose.


  • "It was just a nightmare," said Safta, a physician at the University of Maryland Medical Center who got the loan to build an extension for her parents to live in. What happened?


  • Her servicer had not credited the payments to her account. It might seem to be a simple problem. It's not. A growing number of lawsuits, investigations and studies indicate that servicer blunders and outright misconduct are common — and difficult for homeowners to resolve. Borrower advocates and regulators say the system is effectively broken.


  • "This isn't just a few technical errors," said Anne Balcer Norton, the state's deputy commissioner of financial regulation. "The entire servicing model needs to be revised."

***

  • Three years ago, Baltimore homeowner Brian J. Casey asked his servicer for a payoff statement so he could refinance. Litton Loan Servicing, which had taken over his account from a failing servicer, said Casey's balance due was higher than his own records indicated.


  • Casey said Litton had not credited him for a payment made to the previous servicer, and had tacked on fees that he questioned. So he asked for the loan history.


  • "They formally told me by electronic mail, 'We don't have it,'" said Casey, 55, who runs a Towson-based banking consultancy. "Literally, 'We don't have the records.'"


  • Casey said he pressed for a resolution but didn't get anywhere. Litton, meanwhile, piled on more charges and started foreclosure proceedings. While Casey acknowledged that he had been late on payments, he said he was less than three months behind — the point at which foreclosure is allowed.


  • Casey said he has spent more than $30,000 in legal fees trying to save his family's home, get his account questions answered and fix his ruined credit. "It was like an absolute runaway train," he said.


  • Baltimore-based Civil Justice, a nonprofit that specializes in mortgage problems, has made Casey and his wife the lead plaintiffs in a federal class-action suit against Litton. The class-action allegations focus on foreclosure robo-signing, in which servicer representatives sign documents without checking for accuracy or allow their signatures to be faked by others.


  • But Civil Justice says it's also common to see payment records mismanaged in the handover from a failing servicer to a new firm. "In this case, it could have been resolved very easily," said Phillip Robinson of Civil Justice. "It … escalated and snowballed because Litton just ignored him."

For more, see Problems rampant in mortgage servicing, advocates and regulators say (Errors, misbehavior point to need for reform).

See Misbehavior and Mistake in Bankruptcy Mortgage Claims for more on mortgage servicer screw-ups (in the context of bankruptcy cases).

Fla. Appeals Court To Trial Judge: Pending Affirmative Defenses, Counterclaim Preclude Execution Of Judgment; Score Another Win For Pro Se Homeowners

A Florida appeals court recently granted another request to reverse an erroneous order granting summary judgment of foreclosure in favor of a lender, finding that allowing a subsequent foreclosure sale to proceed was erroneous because affirmative defenses and a counterclaim for fraud were still pending.

Palm Beach County Circuit Court Judge Meenu T. Sasser was the guilty trial judge in this basic screw-up involving fundamental issues of law.

For the ruling, see Peterson v. Affordable Homes of Palm Beach, Inc., 4D09-5180 (Fla. App. 4th DCA, June 29, 2011).

(1) In granting the request of a self-represented homeowner, the three-judge appellate court panel gave trial court Judge Sasser this lesson on basic Florida law applicable here:

  • "Courts have repeatedly held that, where summary judgment is granted for a plaintiff and a counterclaim remains pending, the trial court should stay the execution of the judgment pending the resolution of the counterclaim." Tooltrend, Inc. v. C.M.T. Utensili, S.r.l., 707 So.2d 1162, 1162 (Fla. 2d DCA 1998).

    "[T]he issue of fraud, raised by appellants as a defense and counterclaim, is usually considered a jury question and is not ordinarily appropriate for summary judgment proceedings." L & S Food Servs., Inc. v. Roberts Cafeteria, Inc.,
    422 So.2d 45, 45 (Fla. 2d DCA 1982). See also Millennium Group I, L.L.C. v. Attorneys Title Ins. Fund, Inc., 847 So.2d 1115, 1117 (Fla. 1st DCA 2003) (stating that when summary judgment is granted for one party and a counterclaim on an original claim remains pending, the trial court should stay the execution of the judgment pending the resolution of the remaining claim).

    Here, allowing the foreclosure action to proceed before deciding Peterson's counterclaim effectively denied Peterson the right to a jury trial, which she had demanded in her counterclaim. See Del Rio v. Brandon,
    696 So.2d 1197, 1198 (Fla. 3d DCA 1997). "The purpose of the compulsory counterclaim is to promote judicial efficiency by requiring defendants to raise claims arising from the same `transaction or occurrence' as the plaintiff's claim."

    Id. In Londono v. Turkey Creek, Inc.,
    609 So.2d 14, 20 (Fla. 1992), our supreme court explained "transaction or occurrence," using the "logical relationship test" in order to determine whether a claim was compulsory:

    A claim has a logical relationship to the original claim if it arises out of the same aggregate of operative facts as the original claim in two senses: (1) that the same aggregate of operative facts serves as the basis of both claims; or (2) that the aggregate core of facts upon which the original claim rests activates additional legal rights in a party defendant that would otherwise remain dormant.

    Id.

    Here, Peterson's counterclaim alleged fraud on the part of Affordable Homes in connection with the purchase of the property. Her counterclaim was compulsory, as issues of fact which were "logically related" remained as to the liability of Affordable Homes. Thus final summary judgment of foreclosure should not have been ordered before the trial court considered it.

    We therefore reverse the order granting summary judgment and remand this cause for further proceedings.

Go here for links to some Florida case law on the staying of execution on a judgment while a counterclaim is pending.

While we're at it, a court's granting of summary judgment while discovery is pending is generally problematic for Florida appeals courts as well. See:

Payne v. Cudjoe Gardens Prop. Owners Ass'n, 837 So. 2d 458 (Fla. App. 3d DCA 2002):

  • Where discovery is not complete, the facts are not sufficiently developed to enable the trial court to determine whether genuine issues of material facts exist. See Singer v. Star, 510 So. 2d 637, 639 (Fla. 4th DCA 1987).

  • Thus, where discovery is still pending, the entry of Summary Judgment is premature. See Smith v. Smith, 734 So. 2d 1142, 1144 (Fla. 5th DCA 1999)("Parties to a lawsuit are entitled to discovery as provided in the Florida Rules of Civil Procedure including the taking of depositions, and it is reversible error to enter summary judgment when discovery is in progress and the deposition of a party is pending."); Henderson v. Reyes, 702 So. 2d 616, 616 (Fla. 3d DCA 1997)(reversing the entry of Summary Judgment where depositions had not been completed and a request for the production of documents was outstanding.); Collazo v. Hupert, 693 So. 2d 631, 631 (Fla. 3d DCA 1997) (holding that a trial court should not entertain a motion for summary judgment while discovery is still pending); Spradley v. Stick, 622 So. 2d 610, 613 (Fla. 1st DCA 1993); Singer v. Star, 510 So. 2d 637 (Fla. 4th DCA 1987).

Fleet Fin. & Mortg. v. Carey, 707 So. 2d 949 (Fla. App. 4th DCA 1998):

Trump Leaves BofA Holding The Bag On $22.8M Foreclosed Mansion; Buys Driveway, Front & Back Yard Out From Under Desperate 'Looking To Unload' Bankster

MSN Money reports:
  • This is one foreclosure that won't go Bank of America's way. Donald Trump is putting a huge squeeze on the bank as it tries to foreclose on a 24,000-square-foot estate in Virginia. Bank of America owns the house and is trying to sell it for $16 million, The Wall Street Journal reports.


  • Maybe the bank could sell a normal estate for that much, but not in this case. You see, Trump owns the backyard, the front yard and most of the driveway. He doesn't own the house itself, but he's willing to take it off the bank's hands for, oh, $3.6 million. Ah, you gotta love the Donald.(1)


  • Here's how this nightmare for Bank of America came about: [...]

For more (the short version of the story), see Donald Trump squeezes Bank of America (The company is trying to sell a huge estate it foreclosed on. But the business magnate's cagey moves present a problem).

For the long version of the story, see The Wall Street Journal: The Fall of the House of Kluge Leads to the Rise of the Yard of Trump (The Donald Snaps Up Lawn, Driveway of Foreclosed Manse; Bank Is Not Amused):

  • To make his point, he has erected signs on the front lawn of the mansion that read, "No Trespassing. This Land is Owned by Trump Virginia Acquisitions LLC," aimed at warding off possible buyers. He has also let the lawn go to seed.

(1) Commenting on BofA's attempt to unload the foreclosed mansion that once secured its $22.8 million mortgage:

  • Trump could hardly contain his glee. "Maybe someone is stupid enough to buy the house," he said. "I wish them luck."

Monday, July 04, 2011

Feds Score Eight More Guilty Pleas In Northern California Foreclosure Auction Bid-Rigging Sweep; Sherman Act Violations Leave Investors In Hot Water

From the U.S. Department of Justice:
  • Eight California real estate investors have agreed to plead guilty for their roles in two separate conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.(1)

***

  • According to the felony charges, the real estate investors participated in a conspiracy to rig bids by agreeing to refrain from bidding against one another at public real estate foreclosure auctions in Contra Costa County and Alameda County, Calif.

***

  • The department said that the primary purpose of the conspiracies was to suppress and restrain competition to obtain selected real estate offered at Alameda and Contra Costa County public foreclosure auctions at noncompetitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.(2)

***

  • Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. [...] The Antitrust Division and the FBI have identified a pattern of collusive schemes among real estate investors aimed at eliminating competition at real estate foreclosure auctions, and [the] charges are part of the department’s ongoing effort to combat this conduct and restore competition to public auctions.(3)

For the Department of Justice press release, see California Real Estate Investors Agree to Plead Guilty to Bid Rigging at Public Foreclosure Auctions (Investigation Yields Eight Plea Agreements).

(1) According to the press release, charges were filed in U.S. District Court for the Northern District of California in Oakland, Calif., against Thomas Franciose of San Francisco; William Freeborn of Alamo, Calif.; Robert Kramer of Oakland, Calif.; Thomas Legault of Clayton, Calif.; David Margen of Berkeley, Calif.; Brian McKinzie of Hayward, Calif.; Jaime Wong of Dublin, Calif.; and Jorge Wong of San Leandro, Calif.

(2) According to the Justice Department and/or court documents:

  • after the conspirators’ designated bidder bought a property, the conspirators would hold a secret, private auction at which each participant would bid the amount above the public auction price he was willing to pay;

  • secret, private auctions took place at or near the courthouse steps where the public auctions were held where the highest bidder at the private auction won the property;

  • the difference between the public auction price and that at the second auction was the group’s illicit profit, and it was divided among the conspirators, often in cash.

(3) The investigation into fraud and bid rigging at certain real estate foreclosure auctions in Northern California is being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco office. The Justice Department urges anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm or call the FBI tip line at 415-553-7400.

Another Florida Homeowner Suffers Pre-Foreclosure House-Trashing; Cops To Victim: Don't Bother Us, It's A 'Civil Matter!'

In Brooksville, Florida, WTSP-TV Channel 10 reports:
  • Imagine coming back to your home after being away a few weeks and finding the locks changed and the home trashed. That's what happened to Chris Boudreau of Brooksville. Boudreau showed us the home, which was stripped bare.


  • Walking through the living room, he tells us "I used to have a couch, a sofa, a couple of end tables, a TV, DVD player, tapes and cabinet... but they are now gone."


  • It happened after 21 Mortgage Corporation in Knoxville, which is Boudreau's lender, hired a local company to do the job. The mortgage company spokesperson refused to talk to us, but we talked to Boudreau's attorney, Tom Altman.


  • According to Altman, the woman from the mortgage company told him Florida is a "self help state," and that's why they are allowed to do this. However, Altman explained he was holding the mortgage and Florida is not a self help state. He says he told the woman Florida has strict mortgage foreclosure laws and they were being violated by the company.


  • But the Hernando Sheriff's Office apparently has no interest in enforcing those laws... or burglary, breaking and entering and trespassing, either. They say it is a civil matter, even though everything from the house was taken or thrown in the dumpster. The wedding dress belonging to Boudreau's wife was even cut to shreds.


  • "When she saw what happened, she actually went into in the dumpster trying to go through the stuff," Boudreau says. "She was crying her eyes out."


  • Boudreau's attorney says the Hernando Sheriff's Office is flat wrong. "Although Boudreau had fallen behind a bit in his mortgage, there were no foreclosure proceedings in effect," Altman says. "That means the people who trashed bordures home and took his possessions should be arrested and prosecuted like common criminals."


  • Boudreau says he just wants to get his stuff back. However, that seems unlikely and it appears Boudreau will have to sue to be compensated for his losses.

Source: Man falls behind on payments, mortgage company has home trashed.

(1) For examples of filed lawsuits involving illegal bank break-in, "trash-out" & lockout cases, see:

For those homeowners who've been screwed over by wrongful lockouts by foreclosing lenders (and their confederates) and seek some possible guidance on how much their cases might be worth if they seek to sue, see:

(2) This isn't the first time that cops have washed their hands when investigating these real estate-related crimes. See:

BofA At Center Of Another Servicer Screw-Up; Buyer Who Paid Cash Barely Dodges Foreclosure On Recently-Bought Home Once Owned By Delinquent Borrower

In Sacramento, California, The Sacramento Bee reports:
  • Kamal Sharma almost lost his house in a foreclosure auction the other day. The funny thing is: He doesn't even owe any money on it. Sharma's story – an extreme case even in Sacramento's chaotic real estate market – shows that lenders continue to make foreclosure mistakes despite extensive publicity and promises to fix problems, which include sloppy paperwork and communication breakdowns.

***

  • Sharma's troubles started last month when he arrived at his West Sacramento house one day to find a foreclosure notice from the servicing arm of Bank of America taped to the front door. Sharma, 34, had paid $85,000 in cash for the three-bedroom home in March, using money from a settlement he received from a workplace accident in which he lost half of his left foot. He planned to rent the house out for income.


  • After the foreclosure notice arrived, other curious things happened. A potential buyer came snooping around the neighborhood, and then a property management firm refused to list the house as a rental due to the foreclosure notice.


  • Unable to reach BofA for answers, Sharma headed to West Sacramento City Hall on June 22, the day his house was scheduled for auction. That's when the bank abruptly called off the sale just as buyers were lining up. Sharma still hasn't heard anything directly from BofA. But in response to a Bee inquiry, the bank apologized and attributed the problem to a "data entry error" that restarted an old foreclosure action against the home's previous owner.

For more, see Wrongful home foreclosures rare – but devastating.

Faulty Affidavit Failing To Establish That Prior Notice Of Default & Acceleration Was Given To Homeowner Derails Another Foreclosure Action

William A. Roper, Jr. writes in the Mortgage Servicing Fraud Forum:
  • The Ohio Court of Appeals for the Ninth District [] reversed another Summary Jugment granted by a Summit County Trial Court in the case Central Mortgage Company v. Elia.


  • The Court found that the conclusory averment within the plaintiff's affidavit that all conditions precedent had been satisfied was insufficient to prove compliance with Section 22 of the mortgage.(1) Does that sound familiar?

He goes on to state:

  • After looking through a few Ohio cases I do think it is important to point out that the Plaintiff does seem to be getting an assignment done prior to commencement (about 30 days) but they constantly fail to plead an endorsed copy of the note, even in contested cases, they have failed to attach an endorsed copy of the note to a motion for [summary judgment].


  • There are also many deficiencies in the affidavits submitted by the Plaintiffs, it's important to know the cases and rules on what makes an admissible affidavit. Failure to raise the deficiencies in these affidavits will result in a waiver of the argument.

For Bill Roper's entire post thread, see Ohio Appellate Court Reverses Another Summary Judgment on Failure To Prove Conditions Precedent: Central Mortgage Company v. Elia.

For the ruling, see Central Mortgage Company v. Elia, No. 25505, 2011 Ohio 3188 (Oh. App. 9th Dist. June 29, 2011).

(1) Section 22 refers to the written requirement contained in the mortgage that the borrowers be given written notice by the foreclosing lender prior to the start of the foreclosure process specifying the default, the action needed to cure the default, and the time period within which to do so.

Sunday, July 03, 2011

O'Brien After Land Doc Registry Audit: "My Registry Is A Crime Scene...This Is Disgusting & This Is Criminal!" Calls For Halt To AG Settlement Talks

From the Office of the Southern Essex District Registry of Deeds (Massachusetts):
  • Yesterday at the Annual Conference of The International Association of Clerks, Recorders, Election Officials and Treasurers (IACREOT), Register John O’Brien revealed the results of an independent audit of his registry.


  • The audit, which is released as a legal affidavit was performed by McDonnell Property Analytics, examined assignments of mortgage recorded in the Essex Southern District Registry of Deeds issued to and from JPMorgan Chase Bank, Wells Fargo Bank, and Bank of America during 2010. In total, 565 assignments related to 473 unique mortgages were analyzed.

McDonnell’s Report includes the following key findings:

  • Only 16% of assignments of mortgage are valid,

  • 75% of assignments of mortgage are invalid,

  • 9% of assignments of mortgage are questionable,

  • 27% of the invalid assignments are fraudulent, 35% are “robo-signed” and 10% violate the Massachusetts Mortgage Fraud Statute,

  • The identity of financial institutions that are current owners of the mortgages could only be determined for 287 out of 473 (60%),

  • There are 683 missing assignments for the 287 traced mortgages, representing approximately $180,000 in lost recording fees per 1,000 mortgages whose current ownership can be traced.

***

  • "My registry is a crime scene as evidenced by this forensic examination," stated John O’Brien. "This crime that has affected thousands of homeowners in Essex County who, through no fault of their own, have had their property rights trampled on and their chain of title compromised. This evidence has made it clear to me that the only way we can ever determine the total economic loss and the amount damage done to the taxpayers is by conducting a full forensic audit of all registry of deeds in Massachusetts. I suspect that at the end of the day we are going to find that the taxpayers have been bilked in this state alone of over 400 million dollars not including the accrued interest plus costs and penalties. The Audit makes the finding that this was not only a MERS problem, but a scheme also perpetuated by MERS shareholder banks such Bank of America, Wells Fargo, JP Morgan and others. I am stunned and appalled by the fact that America’s biggest banks have played fast and loose with people’s biggest asset – their homes. This is disgusting, and his is criminal," said O’Brien.


  • O’Brien continued "Once again I am asking Attorney General Martha Coakley and the other state Attorney’s General to follow the lead of New York Attorney General Eric Schneiderman and stop any settlement talks with the banks. The results of this report are only for my registry, but I can assure you that this type of criminal fraud is rampant across the nation. This leaves me to question why anyone would consider settling with these banks until we know the full extent of the damage that they have caused to the homeowners chain of title across this country and the amount of money they have bilked he taxpayers for their failure to pay recording fees."(1)

For more, see Southern Essex Registry of Deeds Audit Reveals That 75% of Assignments of Mortgage Are Invalid; O'Brien Says Banks Responsible for an Epidemic of Fraud (Once again urges Attorney’s General to stop Bank settlement talks).

(1) At the risk of emphasizing what may be obvious to many, this 'crappy title' problem can affect both those properties that have gone through foreclosure, as well as those that haven't.

For more on the crappy title problem in connection with the filing of bogus land documents and improperly foreclosing on homes, see:

Cops: Pair Pinched In Alleged Upfront Fee Loan Mod, Credit Repair Racket Used India Call Center, Local Mail Drop To Bag Victims From Around Country

In Fresno, California, KFSN-TV Channel 30 reports:
  • Police have broken up what they believe is an international mortgage fraud operation with a hub in Fresno. The operation is accused of taking advantage of people in the most desperate financial situations and making their problems even worse.


  • Officers arrested Baljit Singh and Sharanjit Kaur at a Northwest Fresno home, and put them in jail on charges of grand theft. Police served four search warrants Wednesday, and they've uncovered more than 20 victims -- people in dire straits who were taken advantage of when they were looking for a quick way out.


  • A simple arrest in Northwest Fresno brought a complicated web of scams to an end, according to Fresno Police. Singh and Kaur lived in the home and operated a credit repair business and a mortgage modification business. Police say the companies were nothing more than fronts for financial crime.


  • Consumer Credit Repair and Consumer Financial Services targeted people with bad credit or homes in the foreclosure process and promised an easy fix. "We've found victims throughout the country," said Detective Ken Dodd of the financial crimes unit. "One victim in Oregon had also sent money in to Consumer Financial Services only to find out their home loan had not been modified and they received a default notice."


  • Investigators say callers from India contacted victims and convinced them to send money to an office in Fresno. This is the office -- nothing more than a mail drop box where police say the suspects picked up the cash and left their victims sinking even further into debt.

For the story, see International mortgage fraud operation bust in Fresno.

Two Get Prison In Contract For Deed Payment-Skimming Racket; Pocketed Deposits & Monthly Payments From Duped Buyers, Stiffed Existing Mortgage Lenders

From the Office of the U.S. Attorney (Midland, Texas):
  • United States Attorney John E. Murphy announced that 35-year-old Jason Heath Morrison, of Midland, Texas, was sentenced to 84 months in federal prison followed by ten years of supervised release for his role in a real estate fraud scheme, as well as for his failure to register as a sex offender. Morrison’s co-defendant, 35-year-old Marcus Jacob Rosenberger, of Odessa, Texas, was sentenced to 33 months in federal prison followed by three years of supervised release for his roles in the real estate fraud scheme involving Morrison as well as a separate real estate fraud scheme.(1)

***

  • In February 2010, the Midland Police Department began investigating Morrison and Rosenberger for real estate fraud. Morrison and Rosenberger’s scheme involved convincing distressed homeowners, whose homes were in foreclosure, to sign over their properties to Morrison and Rosenberger with only the promise that Morrison and Rosenberger would keep the house out of foreclosure, resell it, and retain any profit.


  • Morrison and Rosenberger then placed ads in local newspapers advertising the homes for sale by owner. Buyers gave Morrison and Rosenberger thousands of dollars in down payments, and then proceeded to pay monthly payments on their new homes.


  • But Morrison and Rosenberger did not apply the buyers’ monies towards the underlying mortgage, which resulted in several of the homes actually be foreclosed and sold at auction, unbeknownst to the original homeowner or the new buyer. Several of the new buyers were evicted and they all lost all the money they paid to Morrison and Rosenberger.

For the U.S. Attorney press release, see Permian Basin Residents Sentenced To Federal Prison For Real Estate Fraud.

(1) According to the press release, Judge Junell also ordered Morrison and Rosenberger to pay $173,495.79 in restitution to their victims; and he ordered Rosenberger to pay an additional $170,108.80 to the victims of a second real estate ripoff.

Foreclosure Rescue Operator Gets 12 Months, Ordered To Pay $48K For Ripping Off 15 Victims In Upront Fee Loan Modification Scam

In Ventura County, California, the Ventura County Star reports:
  • A judge on Tuesday sentenced a 55-year-old Ventura woman to a year in jail after she pleaded guilty to running an illegal real estate foreclosure rescue scam that lured 15 victims who paid her thousands of dollars. Ventura County Superior Court Judge Edward Brodie ordered Maria Victoria Santos to pay $48,000 as restitution and put her on five years probation, according to Deputy District Attorney Dominic Kardum.


  • Santos pleaded guilty in February to three felony counts of unlawful acts by a foreclosure consultant and four counts of grand theft, Kardum said in a press release.


  • Santos victimized predominately Spanish-speaking Ventura County residents and advertised her foreclosure scam on local Spanish-speaking radio stations. Santos promised to save people's homes from foreclosure provided they pay her thousands of dollars in up-front fees, Kardum said.

Source: Ventura woman sentenced to year in jail in real estate scam.

Saturday, July 02, 2011

NY Bankruptcy Court: REMIC Investor Lacks Standing In Chapter 11 Case Where Debtor's Property Secures Loan Included In Pool Held By Trust

Lexology reports:
  • In a recent decision, the Bankruptcy Court for the Southern District of New York concluded that an investor in a Real Estate Mortgage Investment Conduit ("REMIC") lacked standing to object to the sale of a chapter 11 debtor's real property, despite that the property served as collateral for loans held in trust by the REMIC for the benefit of its investors.
For more, see REMIC investor lacks standing to object to sale of collateral in borrower's bankruptcy reorganization (requires subscription; if no subscription, GO HERE; or TRY HERE - then click the appropriate link for the story).

For the ruling, see In re: Innkeepers USA Trust, Case No. 10-13800 (Bankr. S.D. N.Y. April 1, 2011).

Thanks to Deontos for the heads-up on the story.

Lack Of Good Faith Sinks Alabama Homeowners' 'Chapter 20' Bankruptcy Gambit

A U.S. Bankruptcy Court in Anniston, Alabama recently kiboshed a homeowner/couple's attempt at pulling off a so-called 'Chapter 20' bankruptcy (ie. the filing of a Chapter 7 filing to obtain a discharge of unsecured debts, followed by a Chapter 13 filing to work out a 5-year payment plan on the arrearages on secured debts), finding the filing was made with a lack of good faith.(1)

The indicia of a lack of good faith found by the judge:
  • failure to file a Chapter 13 petition soon after obtaining the Chapter 7 discharge ("They waited over 3 years, during which time they incurred 37 new obligations and increased their debts by $37,620");


  • the lack of a need for a Chapter 13 filing immediately after the Chapter 7 discharge to work out any mortgage arrearages existing immediately thereafter ("And most significantly, their mortgage arrears — 3 monthly installments — was not a leftover from their 2007 Cases.");


  • The Debtors' probable intent to simply buy some time until they again became eligible to file another Chapter 7 petition, at which point they would be strategically positioned to once again stiff all their unsecured creditors (this time, on all new obligations incurred subsequent to the filing of the earlier Chapter 7 petition).

With regard to the last point, the court made this comment:

  • "The Debtors' probable motive for filing this case was to bide their time under the protection of the automatic stay (§ 362), and later a confirmation order (§ 1327), until they become eligible for another chapter 7 discharge. While the Court cannot be absolutely certain of the Debtors' motives, it can look at the totality of the circumstances to determine whether their case was filed in good faith, especially at a time they were not eligible for a discharge."

For the ruling, see In re Gaddis, Case No. 11-40050-JJR-13 (Bankr. N.D. Ala. Eastern Div. June 20, 2011).

(1) The judge's general position on so-called Chapter 20 filings was expressed in this excerpt:

  • This bankruptcy judge believes that with the enactment of BAPCPA, and specifically §1328(f)(1), most chapter 13 debtors are now prohibited from seeking relief under chapter 13 until the 4-year bar from discharge required by § 1328(f)(1) is satisfied; especially debtors who have incurred substantial post-chapter 7 debts and whose principal purpose for seeking chapter 13 relief is not to cure mortgage arrears that were left over after a recently granted chapter 7 discharge.

    In any event, § 1328(f)(1) cannot be ignored, and the ineligibility of a debtor to receive a discharge in a chapter 13 case must be considered as a critical factor in a court's determination of whether a chapter 13 case was filed in good faith as required by Section 1325(a)(7), a section also enacted with BAPCPA. In re Gonzalez, No. 08-15277-B-13, 2008 WL 5068837 (Bankr. E.D. Cal. Nov. 25, 2008).

Texas Homeowners In Foreclosure, Residential Tenants Could Feel Some Effects From New State 'Assignment Of Rents' Law

Lexology reports:
  • The Texas legislature just rewrote all real estate loan documents in Texas which include an assignment of rents to the lender (and almost all commercial real estate loans do) when it passed the new Chapter 64 of the Texas Property Code. The Governor signed the bill on June 17, and the law is effective immediately.

    What does this mean to you?


  • LANDLORDS: As of now, a landlord cannot collect rents after its lender gives it notice of default and demands the rents and must turn over any rents it collects to the lender. The landlord can keep the rents already collected except pre-paid rents.

    COMMERCIAL TENANTS: As of now, a commercial tenant should not pay the landlord rent after it receives notice from the landlord's lender demanding the rents, or the tenant may have to pay rent twice.

Among the effects on homeowners & tenants in residential property:

  • An assignment of rents is not effective in a home equity loan or a reverse mortgage and cannot be enforced against a against the borrower's homestead if the homestead is a one to four family dwelling and the property was the borrower's homestead both when the assignment was executed and when the enforcement action is taken.(1)


  • Upon giving notice, the lender is entitled to all uncollected rents and all pre-paid rents. The lender is not entitled to rents already collected by the borrower, except for pre-paid rents that accrue on or after the date the lender gives notice. The tenant is not obligated to pay to the lender any rent that was prepaid to the borrower (i.e. the landlord) before the tenant received notice from the lender.


  • After the tenant receives the notice, the tenant is obligated to pay rent to the lender and cannot satisfy its obligation to pay rent by paying the landlord (unless the property is the tenant's primary residence).


  • If the property is the tenant's primary residence, the tenant can discharge his or her obligation to pay rent by paying either the lender or the borrower (i.e. the landlord).(2)

For more, see The Texas legislature may have just rewritten your real estate loans (requires subscription; if no subscription, TRY HERE; or GO HERE - then click the appropriate link for the story).

(1) Arguably, this law (at least in theory) should make it that much easier for rent-skimming, non-owner occupant homeowners to be charged criminally with theft, conversion, etc. when pocketing tenants' rent payments while contemporaneously stiffing lenders out of their loan payments when facing foreclosure (provided, of course, that the homeowner's mortgage contains an assignment of rents to begin with - which is not uncommon for mortgages securing 2 to 4-family homes).

(2) Where the residential tenant has the legal option of paying either a financially strapped landlord facing foreclosure or a lender seeking to preserve its loan collateral, he may be well-advised to pay the lender. A landlord facing foreclosure is more likely to pocket the cash and not pay the utility bills (ie. water, electric, trash pick-up, etc.) or make necessary repairs than the foreclosing lender (although don't hold your breath expecting the lender to be too efficient in handling the situation).

'Lien Priority' Battles Between Recorded, Unrecorded Interests In Real Estate Continue; Homebuyer Downpayment Lien Trumps Builder's Construction Loan

Bona fide purchaser fans (including title insurance lawyers & agents, as well as home buyers making downpayment deposits on yet-to-be-built homes & condos, and construction lenders) may find the following butchered summary of some of the facts from a recent ruling of the South Carolina Court of Appeals of some interest:
  1. Covington, an experienced real estate broker, enters into a contract with Wingard, a real estate developer, for the purchase of a yet-to-be built home.


  2. Covington gives Wingard two downpayment checks, one for $10,000, which was deposited shortly thereafter, and one for $276,700, which was given with the instruction that it was not to be deposited until after Wingard obtained a mortgage loan to commence construction of the premises.


  3. The $276,700 check given by Covington was a 'hot check' (ie. he did not have sufficient funds in his bank account to cover this amount).


  4. As a precondition for the yet-to-be obtained construction loan, lender required Wingard to sell the unit for each lot in the development.


  5. Wingard apparently met the condition, as lender subsequently provided a $7,000,000 construction loan.


  6. Shortly after the mortgage securing the construction loan was recorded, Wingard deposited Covington's $276,700 check which, because Covington had since deposited sufficient funds in his account to cover it subsequent to its issuance, was no longer 'hot', and cleared without incident.


  7. Wingard ultimately defaulted on the construction mortgage, and the lender initiated foreclosure.


  8. At some point thereafter, a question arose regarding the lien priority involving the competing interests of the lender's recorded construction mortgage, and Covington's equitable lien(1) (which, by its very nature, is an unrecorded lien) for the amount of his down payment deposit.

Question:

As between the competing interests of Covington's unrecorded equitable lien and the lender's recorded mortgage, which lien has priority on the premises?

If you guessed that the lender's recorded mortgage had priority over Covington's unrecorded equitable lien for the amount of his downpayment money, GUESS AGAIN.

Given the specific facts of this case, and as set forth in the court's ruling, Covington's equitable lien for his downpayment cash trumps the lender's construction loan, so that any foreclosure of the mortgage will leave Covington's lien for his downpayment unaffected (ie. the bank's construction loan is, in effect, treated as a 2nd mortgage subordinate to Covington's lien; if he does not recover his downpayment money, Covington (along with other would-be buyers who coughed up deposits on the struggling project) will then be able to foreclose on the bank to reclaim his cash).

Further, the court found this to be the case, notwithstanding the fact that Covington's $276,700 check:

  • was held uncashed by Wingard until after the construction loan was made, and

  • was written at a time when there were insufficient funds in the bank to cover the payment (although funds were ultimately made available when the check was eventually deposited).

For full facts, the ruling, and the court's application of the relevant law, see Regions Bank v. Wingard Properties, Inc., Opinion No. 4846 (S.C. Ct. App. June 22, 2011).

(1) I mention in passing that when a buyer pays a downpayment for any purchase of real estate, the buyer is generally entitled to an equitable lien on the premises for the amount of his deposit. The entitlement to such an equitable lien is usually not any big deal - except, of course, in those cases where the transaction ultimately fails to close and the seller and/or escrow agent refuses to refund the deposit back to the buyer.bona fide purchaser

Adult Daughter's Homestead Claim Against Deceased Mom's Estate Trumps Foreclosure Rescue Operator

The following facts are taken from a recent ruling of the Minnesota Court of Appeals ('Yennie' = foreclosure rescue operator; 'Wolf' = now-deceased homeowner):
  • Yennie's claim against the estate is based on a written agreement that he and Wolf executed in August 2004. The agreement, which is entitled "Investment Agreement Conveying Partial Interest in Real Property," relates to Wolf's home in the city of Plainview.

    The agreement provides that Yennie will assist Wolf in redeeming the property from foreclosure, make payments to bring the mortgage up to date, and perform repairs to the house in anticipation of its sale.

    The agreement further provides that, upon the sale of the property, Wolf would receive the first $47,500 in proceeds; Yennie then would receive reimbursement for the expenditures he made; and Wolf and Yennie then would evenly split the remaining proceeds.

    Wolf died intestate on January 22, 2010. Yennie filed a claim against the estate in the amount of approximately $28,000, which reflects expenditures he made pursuant to the 2004 written agreement.

    The personal representative disallowed the claim. Meanwhile, Wolf's daughter, his only surviving heir, filed a [statutory homestead] claim against the estate in the amount of $10,000.

In applying Minnesota law, the state appeals court held that, by reason of the homestead provisions in the state statute, Wolf's daughter was entitled to priority over the claim made by Yennie for the $28,000 he shelled out to fix up Wolf's home and pay the bills.

Inasmuch as there was insufficient money in this case to pay off all the claims made against the estate, and Wolf's daughter cashed out on her $10,000 homestead claim in full, Yennie was consequently left partially holding the bag on his claim, entitled to split whatever was left in the estate with one other claimant, and pocketing only a fraction of what he ponied up to fix up the home of the now-deceased homeowner.

For the ruling, see In re Estate of Wolf, No. A10-2029 (Minn. App. June 20, 2011) (unpublished).

Using California Trust Deeds To Secure Non-Accelerable Or Contingent Serial Obligations - Pitfalls & Possible Solutions

A recent article in Lexology discusses the pitfalls of using real estate in California to secure non-accelerable or contingent, serial obligations, such as rent payments or indemnification obligations, resulting from the operation of, among other related statutes:
  • Section 726 (ie. “one form of action” or "one action" rule, along with with its judicially created corollary rule that a creditor must resort to its “security first”(1)), and


  • Section 580d (the anti-deficiency provision)

of the California Code of Civil Procedure in non-judicial foreclosures under California law.

Along with a discussion of the pitfalls, approaches to deal with them are explored.

For those in California (and, I suppose, anywhere else, for that matter) who have any idea what all this might be referring to and may have some interest,(2) see One deed of trust and several obligations: the case for layered foreclosure in California (requires subscription; if no subscription, GO HERE; or TRY HERE - then click appropriate link for the story).

(1) Go here for links to several dozen California cases addressing the state's "one form of action" and "security first" rules.

(2) If not, don't worry about it, it's not important anyway.

Trusts Appearing Upstream In Chain Of Title & Property Ownership Rights Of Subsequent Purchasers

A recent ruling by the Georgia Court of Appeals may be of some interest to title examiners and attorneys in the title insurance industry when insuring property containing a trust as a title holder somewhere upstream in the chain of title.

While I'm sure that this post will be of interest to absolutely no one other than possibly title insurance professionals and bona fide purchaser aficionados, I know I'll be referring back to this case in the future. Accordingly, it makes the cut and gets posted(1) (bold text is my emphasis):
  • 1. Kitchings first argues that the trial court erred in holding that Patch Nursery and Ameris Bank were bona fide purchasers for value. Kitchings contends that the co-trustees' distribution of all the property in a single transfer to Christine Cannon was sufficient to put a reasonably prudent title examiner on notice that the transfer was a mismanagement of the assets of the trusts, a breach of the trust agreement and a breach of the co-trustees' fiduciary duty to the remainder beneficiaries.

    "As a general rule, a bona fide purchaser for value is protected against outstanding interests in land of which the purchaser has no notice. Farris v. Nationsbanc Mtg. Corp., 268 Ga. 769, 770 (2) (493 SE2d 143) (1997); OCGA §§ 23-1-19, 23-1-20. We have long held that a grantee in a security deed who acts in good faith stands in the attitude of a bona fide purchaser, and is entitled to the same protection." Brock v. Yale Mtg. Corp., 287 Ga. 849, 852 (700 SE2d 583) (2010).

    To qualify as a bona fide purchaser for value without notice, a party must have neither actual nor constructive notice of the matter at issue. Notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found that such inquiry might have led. Whiten v. Murray, 267 Ga. App. 417, 421 (2) (599 SE2d 346) (2004). A purchaser of land is charged with constructive notice of the contents of a recorded instrument within its chain of title. VATACS Group v. HomeSide Lending, 276 Ga. App. 386, 391 (2) (623 SE2d 534) (2005). Furthermore, the grantee of a security interest in land and subsequent purchasers are entitled to rely upon a warranty deed that is regular on its face and duly recorded in ascertaining the chain of title.

    Deutsche Bank Nat. Trust Co. v. JP Morgan Chase Bank, 307 Ga. App. 307, 309 (704 SE2d 823) (2010).

    Here, Thomas Cannon, Sr.'s will granted to the trustees the power "[t]o sell, exchange, partition or otherwise dispose of any property at any time held or acquired under this will . . . for such purposes as my personal representatives may deem best. . . ." The will further provided: "[m]y primary desire is that my spouse be supported in a reasonably comfortable manner throughout life rather than the preservation of principal until the termination of this trust, and I wish my Co-Trustees to be guided by this consideration in determining the amount to be used for the support of my spouse. . . ." (emphasis supplied).

    The title search shows that the property was transferred to Christine Cannon through a Trustees Deed of Distribution, from the remainder trust to the primary beneficiary of the trust. The wording of the trusts at issue, as set out previously, allows the trustees to sell or dispose of any property, at any time, for reasons they may deem best, for the benefit of Christine Cannon.

    "A purchaser of land is charged with constructive notice of the contents of a recorded instrument within its chain of title. Conversely, a purchaser is not charged with constructive notice of interests or encumbrances which have been recorded outside the chain of title." Gallagher, supra at 625. Here, there is nothing in the chain of title or the trust instruments that would put either the bank or Patch Nursery on notice that there were any issues affecting title to the properties.

    The provisions of Cannon, Sr's will gave broad discretion to the trustees. Thus, there was nothing in the documents themselves sufficient "to excite attention and put a party on inquiry." See Whiten, supra at 421. See also Beecher v. Carter, 189 Ga. 234 (5 SE2d 648) (1939) ("Where a purchaser of land from one in possession, who holds a deed thereto [that] is absolute on its face, has paid the purchase-price and taken possession, parties claiming an equity therein of which the purchaser had no notice are not entitled to have purchaser's deed canceled.").

    Accordingly, there was no error in the trial court's grant of summary judgment to Ameris Bank and Patch Nursery on the grounds that they were entitled to the protection of bona fide purchaser for value on Kitchings's claim to cancel their deeds.

For the ruling, see Kitchings v. Ameris Bank, A11A0323 (Ga. Ct. App. June 8, 2011).

(1) Apologies to the handful of you who are here reading this blog on July 4th weekend instead of being away on vacation, and thanx for your forebearance and patronage!

Equitable Subrogation Takes Hit From Kentucky Supreme Court

In another post that may be for title professionals only (also for real estate legal professionals involved in undoing/voiding mortgages on homes arising as a result of a home equity ripoff), Lexology reports:
  • Lenders, title insurance companies and their agents should be aware that on April 21, 2011, the Supreme Court of Kentucky issued a decision that could have a significant effect on Kentucky courts’ application of the doctrine of equitable subrogation in Kentucky. Wells Fargo Bank, Minnesota, N.A. v. Commonwealth, --- S.W.3d ---, 2011 WL 1620578 (Ky. Apr. 21, 2011).

***

  • [T]he Court reached a number of conclusions that should give lenders, title agents and title insurers pause:

    “[P]rofessional mortgage lenders should be held to a higher standard for purposes of determining whether the lender acted under a justifiable or excusable mistake of fact in failing to duly investigate prior liens.” Id. at 13-14.

    “Equity also demands that the responsibility for a defective title examination be allocated to the party who is most culpable.” Id. at 14.

    Equitable subrogation must not be used to “bail out a negligent title insurer.” Id. at 15.

    “Those title insurers are engaged in the very profitable business of assuring that their lending institution customers receive a clear title by insuring such.” Id. at 15.

    Describing a lender’s decision not to make a loan if it must first satisfy a tax lien as “the sound lending practices that our society deserves, especially in the aftermath of this nation’s 2008 financial meltdown.” Id. at 19.



  • The Wells Fargo Court’s holding was narrowly limited to a conclusion that “a professional lender who has actual or constructive knowledge of an earlier recorded general tax lien may not benefit from an equitable reordering of the liens.” Wells Fargo at 19.


  • The holding does not expressly affect equitable subrogation in the context of competing “professional lenders,” for example, so the ramifications of the decision could be limited. But the above-quoted language could easily lead to further erosion of equitable subrogation, something that would significantly affect lenders, title insurers and their agents.

For more, see Wells Fargo v. Commonwealth: the death knell for equitable subrogation? (requires subscription; if no subscription, GO HERE; or TRY HERE - then click the appropriate link for the story).

Friday, July 01, 2011

Oregon Judge Slams Brakes On F'closure Eviction; Failure To Record Mortgage Assignment Violates State Law, Allows Homeowner To Unpack Bags & Stay Put

In Columbia County, Oregon, The Oregonian reports:
  • A Columbia County judge has blocked U.S. Bank from evicting a Vernonia woman whose home it purchased in foreclosure, concluding in a case with far-reaching implications that her lenders had not properly recorded mortgage documents.


  • Last week's action appears to be the first in which an Oregon judge has halted an eviction and declared a foreclosure sale void after the fact. The ruling, if it stands, raises questions about the validity of other recent foreclosures in the state and could create serious problems for lenders and title companies, as well as for buyers of such properties.

***

  • Nearly all foreclosures in the state occur without a judge's involvement under so-called nonjudicial proceedings. But this ruling, legal observers say, could potentially divert more foreclosure actions into courtrooms, a more time-consuming and costly proposition that could exacerbate the state's housing slump. "This will certainly be problematic for lenders," said David Ambrose, a Portland real-estate attorney.


  • It also casts doubt on the validity of already completed foreclosure sales in which lenders resold mortgages without recording the sales in county recorder offices. Many of those questionable transactions, [...] involve the Mortgage Electronic Recording System. MERS was created by the mortgage industry to rapidly securitize loans without recording them.


  • Federal judges in Oregon have ruled that MERS-involved foreclosure actions violated state recording law. MERS also has been tied to so-called robo-signing scandals that prompted a 50-state investigation of the nation's largest loan servicers and banks.

For more, see Oregon judge voids foreclosure sale, casting doubt on others.

For the ruling, see U.S. Bank v. Flynn, Case No. 11-8011 (Columbia Cty. Cir. Ct. June 23, 2011).

Who Are Bank Of America's Newest Robo-Signers?

From Fraud Digest:
  • Who are Bank of America's newest robo-signers? For several years, BOA turned to its subsidiary, BAC Home Loans Servicing, in Collin County, Texas, whenever mortgage assignments were needed in foreclosures. This office, formerly Countrywide Home Loans Servicing, produced hundreds of thousands of assignments, including most all of the assignments to Countrywide CWABS and CWALT trusts.


  • In recent months, however, BOA has turned to its office in Ventura County, California, as the Collin County, TX, signers have become too well known. These assignments are made primarily for CWALT and CWABS trusts that closed in 2005, 2006 and 2007.


  • These assignments claim to assign both the mortgages and the notes to the trusts. On each of these assignments, MERS is stated to be the HOLDER of the mortgage.

Source: Who are Bank of America's newest robo-signers?

(1) Who are the newest signers - who use MERS titles to assign mortgages TO BAC while actually working FOR BAC - signing as if they were MERS officers for dozens of different companies? According to Fraud Digest, The names appearing most often include:

  • Ricki Aguilar, Malik Basurto, Youda Crain, Diana DeAvila, Edward Gallegos, Christopher Herrara, Bud Kamyabi, Tina LeRaybaud, Jane Martorana, Martha Munoz, Srbui Muradyan, Debbie Nieblas, Yomari Quintanilla, Luis Roldan, Miguel Romero, Cynthia Santos, Swarupa Slee.

According to Fraud Digest, these individuals, in 2011, have signed as MERS officers for the following mortgage companies and banks, including many that no longer existed in 2011:

  • Aegis Wholesale Corporation, American Brokers Conduit, America's Wholesale Lender, Amnet Mortgage, Ampro Mortgage, Countrywide Bank FSB, Decision One Mortgage Company, First Choice Funding Inc., First Interstate Financial Corp., First National Bank of Arizona, Market Street Mortgage Corp., M/I Financial Corp., Millenia Funding Corporation, MortgageIt, One Mortgage Company, LLC, Pinnacle Direct Funding Corp., Pulte Mortgage, Quicken Loans, Universal American Mortgage Company, Service Mortgage Underwriters, Inc., Wilmington Finance, Inc.

CoreLogic in Chapin, South Carolina, is the keeper of these documents, and Bank of New York Mellon is the trustee for most of the CWABS and CWALT trusts that use these BAC documents, according to Fraud Digest.