Thursday, August 29, 2013

Dangerous Assignments:: Heritage Pac. Fin., LLC v Monroy (2013) 215 CA4th 972

Researched by Deontos

Even if this were a real liar’s loan (i.e., when the borrower had truly, and voluntarily, lied in her loan application), the original lender might well have had a cause of action for fraud, but not the successor holder of the mortgage, to whom no such lies had been told. Heritage’s standing was as an assignee, not as a victim.


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SUMMARY


Heritage Pac. Fin., LLC v Monroy (2013) 215 CA4th 972

Assignee of a promissory note sued Borrower for fraud based on alleged misrepresentations made in Borrower’s loan application. Borrower cross-complained against Assignee, alleging violation of the Fair Debt Collection Practices Act (FDCPA) (15 USC §§1692-1692p). The trial court sustained without leave to amend a demurrer against the complaint on the grounds that it failed to state a cause of action for fraud based on assignment. The trial court granted Borrower’s motion for summary adjudication on the FDCPA claim. Assignee appealed.

The court of appeal affirmed. The trial court properly sustained the demurrer. The transfer of the promissory note provided Assignee with contract rights; it did not carry with it a transfer of the lender’s tort rights. Fraud rights are not, as a matter of law, incidental to the transfer of a promissory note. The complaint did not allege that the assignment transferred the ancillary right of a tort claim, nor did the attached documents support any claim of such an assignment. The transfer of the promissory note did not show a clear intent to assign the assignor’s fraud claim.

The allegations also did not show an assignment of the tort claims based on custom and practice. Alleging general custom and practice did not expand the assignment agreement to include ancillary rights not specified. The assignment was silent regarding any tort claim and nothing suggested that it included any rights other than those incidental to the contract rights.

The trial court properly granted Borrower’s motion for summary adjudication on the FDCPA claim. Assignee violated the FDCPA when it stated in a letter to Borrower that it had the right to sue her for any misinformation in her loan application.

______________________________________

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David Reiss | August 23, 2013
Roger Bernhardt gave me permission to repost this analysis, which has appeared on Dirt and elsewhere:

Heritage Pac. Fin. v Monroy

The same appellate panel that delivered a terrifying punch to the residential lending industry a few months ago in Jolley v Chase Home Fin., LLC (2013) 213 CA4th 872, reported at 36 CEB RPLR 46 (Mar. 2013) (which is now official, since the supreme court declined to review it), has now given another branch of that industry an equally frightening setback in Heritage Pac. Fin., LLC v Monroy (2013) 215 CA4th 972. More fully described on p 84 of this issue, the case concerned a financial institution (Heritage) whose business model involved buying up defaulted junior mortgages that had already been rendered worthless by senior foreclosures, and then attempting to collect whatever it could from the former mortgagors, even when-as in this case-those mortgages were purchase money loans, and therefore uncollectible because of CCP §580b’s one-action rule.

After acquiring Ms. Monroy’s mortgage and sending three demand letters to her, Heritage discovered that she had apparently falsified her income on her original loan application and had wrongly represented the purchase as an arm’s-length transaction when, in fact, she was buying the house from her son. Emboldened by these discoveries, Heritage wrote Monroy again and also filed a complaint against her for fraud. She responded by cross-complaining that Heritage was violating the California and federal Fair Debt Collection Practices Acts.

After a lot of procedural skirmishing, the trial court sustained Monroy’s demurrer to Heritage’s complaint and granted summary judgment to her on her cross-complaint, awarding her $1 in damages but also $90,000 in attorney fees and costs. All of this was affirmed on appeal.
The published and lengthy appellate decision, although sometimes surprising in its reasoning, gives a good deal of guidance to practitioners-especially those who represent creditors and their collection arms or cohorts-as to the many dangers lurking in attempts to collect residential debt obligations too energetically.

Careless Handling of Assignments

The main reason that Heritage lost, and the ground that undermined and defeated all of its other theories, was that it was not a proper holder of whatever fraud claims Monroy’s original lender (WMC) had against her, because it could not show that those claims had been truly assigned to it by WMC. Even if this were a real liar’s loan (i.e., when the borrower had truly, and voluntarily, lied in her loan application), the original lender might well have had a cause of action for fraud, but not the successor holder of the mortgage, to whom no such lies had been told. Heritage’s standing was as an assignee, not as a victim.

Heritage had alleged that WMC had also assigned its cause of action for fraud to it, but both the trial court and the court of appeal ruled that its pleading on that issue was insufficient to withstand Monroy’s demurrer. Its allegations that WMC had intended to and had in fact “sold the loans and assigned any and all rights … including [the] fraud claim” action to it were too conclusory to be sufficient. The sale agreement between WMC and Heritage transferring “all right, title and interest in the loan” was no better at demonstrating assignment of a cause of action for fraud. Nor was the endorsement on the note (not quoted in the opinion) apparently any clearer. Heritage had tried to plead its way around the courts’ ungenerous reading of the transfer documents by making reference to custom and practice, as well as to language in Monroy’s loan application (which said that both the lender and its assigns would be relying on her truthfulness), but those considerations were also held to fail to cure the pleading deficiencies. Even a declaration from an officer of WMC that when it sold loans it also “assigned all of its legal rights in tort as well as contract … including the right to recover against a borrower for fraud” was not enough to rehabilitate Heritage’s incomplete complaint. Finally, the principle underlying CC §1084-that an assignment of a right generally also transfers all other rights incident to it-was held not to connect claims based on fraud in an earlier loan application with claims based on nonpayment of the later assigned promissory note that resulted from the loan application. Therefore, the most that could be said was that Heritage, as an assignee of WMC’s claims against Monroy on her note, was not the assignee of its cause of action for fraud allegedly committed by her in obtaining the funds that she owed under the note; those claims apparently still lay with WMC.

Readers may find a lot of this reasoning rather fishy, but displeasure with a judicial rule doesn’t entitle the bar to ignore it. The judges may have viewed Heritage Financial as the kind of character who gives the whole industry a bad name, but their holding set forth a rule of law that everyone else must also take into account. Under this new principle of construction, the most generous language imaginable in a blanket assignment or endorsement will not necessarily transfer all other rights-and those untransferred may be the particular ones that the transferee may find it needs most.

Sometimes, an imperfect transfer can be redeemed by a simple expedient, such as getting another transfer document executed or having the original holder join in the existing proceeding. But more costs are often incurred, even if one is only required to start all over, e.g., the right person is no longer available or will not agree (except for a price) to take the extra steps required, or some deadline has since passed. In some fussier judicial foreclosure jurisdictions, successor lenders who initiated their foreclosures before they had properly crossed all the “t’s” of their previous secondary market transactions were forced to go back to square one and redo every step, rather than being allowed to simply amend their previous work product to correct the slips.

So, if your client is a potential transferee of any right, you had better employ every conceivable noun, verb, and adjective in the transfer documents that you generate to make sure that no obscure or trivial little interest is left behind, even if that ends up making the documents 50 pages rather than 5 pages long.

That strategy may not be necessary if your client is the assignor instead, since an incomplete transfer may be in her best interests, thereby leaving her with some rights that might be valuable or available for a later windfall sale or enforcement. On the other hand, as her lawyer, you might worry whether any reps or warranties she is making in the documents will later require her to put in further (expensive) efforts or pay indemnities when it is discovered that only 99 percent rather than 100 percent was transferred.

If you represent the obligor underlying the assigned transfer, your client is likely not only to be uninvolved in the transfer, but to not even know of it-there aren’t any significant attornment doctrines in mortgage law, so there is probably little precaution to consider at that stage. Maybe your client can even hope that he can successfully claim some kind of third party beneficiary rights enabling him to capitalize on the other side’s mistakes. “Show me the note” may not be entirely dead.

Other Consequences

The failure to effectively transfer the fraud cause of action was only the beginning, not the end, of the story in this case. While Heritage might yet be able to prevail on a fraud claim if it corrects the assignment issue, not having done so when it first asserted its claims against Monroy made it liable to her for violating the federal Fair Debt Collection Practices Act (which apparently would not have been the case if it had taken a proper assignment).

Mortgage foreclosure proceedings are often-although not always-not regarded as debt collection activities, since they seek to enforce a security interest instead, but post-foreclosure proceedings are clearly different, since the property has been sold and only money remains at issue. Since Heritage was attempting to collect money rather than to realize upon now worthless security, it was acting as a debt collector. If Heritage had no right to collect any money from Monroy-because the cause of action on her mortgage note was barred by the antideficiency rules and the cause of action for fraud had not properly been assigned to it-then its wrongful attempts to recover could violate the debt collection acts.

Do such statutes apply to Heritage? Was this residential mortgage a personal, family, or household obligation, since Monroy had claimed in her loan application that she was intending to live in the house (although that may have been another lie)? Was Heritage’s complaint exempt because it was a legal document (a complaint) rather than a communication, if it was based on a false claim (because of CCP §580b and the rules regarding assignments)? Was the claim exempt because it was a tort claim, which many cases have held do not fall under the debt collection statutes, or was it still covered because the alleged fraud arose out a consumer transaction? The court’s treatment of these issues was as inhospitable to Heritage as its treatment of the assignment issue (and perhaps as dubious), but the lessons to be drawn and the avoidance procedures to follow are not as apparent. Debt collection is dangerous activity and courts are not motivated to be very forgiving. So don’t make mistakes. (How is that for helpful advice?)

Heritage Pac. Fin., LLC v Monroy (2013) 215 CA4th 972

Assignee of a promissory note sued Borrower for fraud based on alleged misrepresentations made in Borrower’s loan application. Borrower cross-complained against Assignee, alleging violation of the Fair Debt Collection Practices Act (FDCPA) (15 USC §§1692-1692p). The trial court sustained without leave to amend a demurrer against the complaint on the grounds that it failed to state a cause of action for fraud based on assignment. The trial court granted Borrower’s motion for summary adjudication on the FDCPA claim. Assignee appealed.

The court of appeal affirmed. The trial court properly sustained the demurrer. The transfer of the promissory note provided Assignee with contract rights; it did not carry with it a transfer of the lender’s tort rights. Fraud rights are not, as a matter of law, incidental to the transfer of a promissory note. The complaint did not allege that the assignment transferred the ancillary right of a tort claim, nor did the attached documents support any claim of such an assignment. The transfer of the promissory note did not show a clear intent to assign the assignor’s fraud claim.

The allegations also did not show an assignment of the tort claims based on custom and practice. Alleging general custom and practice did not expand the assignment agreement to include ancillary rights not specified. The assignment was silent regarding any tort claim and nothing suggested that it included any rights other than those incidental to the contract rights.

The trial court properly granted Borrower’s motion for summary adjudication on the FDCPA claim. Assignee violated the FDCPA when it stated in a letter to Borrower that it had the right to sue her for any misinformation in her loan application.

ORDER DENYING PETITION FOR REHEARING IN GLASKI v BANK OF AMERICA

Brenda Reed

On July 31, 2013 California Fifth Appellate Court of California filed an unpublished opinion in Glaski v. Bank of America that reversed the lower court's judgment of dismissal.  Five days later
attorneys Atognini and Didak filed to have the Opinion of the 5th Circuit published.

By August 8, 2013 the 5th Circuit agreed to publish its opinion,  Then by August 16, 2013 twenty-two  additional requests for publication were filed with the court of which only three were attorney requests with the remaining nineteen being from interested parties (foreclosure fighters).

On August 23rd  a "Petition for Rehearing" as to the order of 8/8/13 granting publication was filed by Atty Glavinovich obo Respondents Bank of America, N.A. (JAA)  The Document was received and not filed due to original signature needed.

Victory came today when the Court issued its order denying the petition for rehearing..  This leaves the door open for the lower Court to hear the case.  

To all who stood with Glaski and other homeowners let me say thank you.   Let's be inspired and reenergized in our efforts to prevail over the banks.  Well done.


FIFTH APPELLATE DIVISION CALIFORNIA
Glaski v. Bank of America, N.A.
Case Number F064556
Court data last updated: 08/29/2013 12:05 PM

Docket (Register of Actions)


07/31/2013 Opinion filed.     (Signed Unpublished) The judgment of dismissal is reversed. The trial court is directed to vacate its order sustaining the general demurrer and to enter a new order overruling that demurrer as to the third, fourth, fifth, eighth, and ninth causes of action. Glaski's request for judicial notice filed on September 25, 2012, is denied. Glaski shall recover his costs on appeal; Franson, Wiseman, Kane; 29 pages.
opinion ordered published on 8/8/13
08/05/2013 Filed request to publish opinion.     Atty Antognini obo applt Glaski (JAA)
08/05/2013 Filed request to publish opinion.     atty Didak (JAA)
08/08/2013 Order granting publication filed. As the nonpublished opinion filed on July 31, 2013, in the above entitled matter hereby meets the standards for publication specified in the California Rules of Court, rule 8.1105(c), it is ordered that the opinion be certified for publication in the Official Reports. (JAA)
08/08/2013 Received:     request for publication submitted by atty Freshman, however pos does not include all parties ; moot since publication granted
08/08/2013 Received:     request for publication submitted by atty Perry, however pos does not include all parties; moot since publication granted
08/09/2013 Received:     Request for Publication by Robert H. Rhoades. Publication granted 8/8/13.
08/09/2013 Received:     Request for Publication by Rumio Sato. Publication granted 8/8/13.
08/09/2013 Received:     Request for Publication by James Macklin. Publication granted 8/8/13.
08/09/2013 Received:     Rquest for Publication by Rick Ensminger. Publication granted 8/8/13.
08/09/2013 Received:     Request for Publication by Attorney Allen J. Cory. Publication granted 8/8/13.
08/09/2013 Received:     Request for Publication by Charles W. Cox. Publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Elaine Williams, Publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Erlinda Aniel, Publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Brenda Reed, Publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Toni Schultheis, Publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Thomas Schultheis, Publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Susan Augustitus, Publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Daniela Romero, Publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by David Lilly, publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Debbie Thompson, publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Jeanine Newman-Reynolds, publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Keith Schwartz, publication granted 8/8/13.
08/13/2013 Received:     Request for Publication by Fareed Sepehry-Fard, publication granted 8/8/13.
08/15/2013 Received:     Request for Publication by Matthew Pitagora, publication granted 8/8/13.
08/16/2013 Received:     Request for Publication by Rick and Linda Jones, publication granted 8/8/13.
08/16/2013 Received:     Request for Publication by Douglas Hackett, publication granted 8/8/13.
08/21/2013 Request filed to:     for certified copy of order for publication by Atty Bruce Guttman (certified copy mailed this date).
08/22/2013 Request filed to:     for copy of opinion & order granting request for publication by Rob Rhoades (copies mailed this date).
08/22/2013 Received copy of     ex-parte application of Leah Litman to Appear Pro Hac Vice by atty Glavinovich (JAA)
08/22/2013 Received copy of     ex-parte application of Alan E. Schoenfeld to Appear Pro Hac Vice by atty Glavinovich (JAA)
08/22/2013 Received copy of     ex-parte application of Noah Levine to Appear Pro Hac Vice by atty Glavinovich (JAA)
08/23/2013 Received document entitled:     "Petition for Rehearing" as to the order of 8/8/13 granting publication; filed by Atty Glavinovich obo Respondents Bank of America, N.A. (JAA) Note: The Document was received and not filed due to original signature needed.
08/23/2013 Received:     Request for publication by Paul Papas - request is moot, publication previously granted 8/8/13 copy of order sent today)
08/23/2013 pro hac vice application     atty Theodore E. Bacon for respondents Bank of America National Association: applicationa for attys Noah Levine; Leah Litman; Alan E. Schoenfeld to appear pro hac vice. (to JAA)
08/26/2013 Rehearing petition filed.     atty Glavinovich obo applt (JAA)
08/26/2013 Filed document entitled:     original certificate of word count for petition for rehearing (JAA)
08/27/2013 pro hac vice granted     The ex parte applications of Leah Litman, Noah Levine and Alan E. Schoenfeld to appear pro hac vice, filed by respondents on August 23, 2013, are hereby granted. (JAA)
08/29/2013 Order denying rehearing petition filed.     JAA

Wednesday, August 28, 2013

BOMBSHELL REVELATION: ALL WAMU LOAN DOCS WERE UPLOADED TO MERS & DESTROYED


Brenda Reed,  August 28, 2013

Where, oh where have the Washington Mutual Bank FA original loan documents gone?  
Uploaded to MERS then
Gone to shredders everyone.  
When will they ever learn?   When will they ever learn?

Remember those big moving trucks being loaded with scores of WAMU loan documents down in the heart of Texas and then transported to Mexico as caught on film by a local TV news group.  The saga continues.

Intrepid foreclosure fighter, Dr. James Madison Kelley, has filed a sworn affidavit of  WMBFA borrower, Karyn Armstrong, in US Bankruptcy Court in San Jose, California in support of his adversarial proceedings against JPMorgan Chase Bank NA and Washington Mutual Bank FA   The revelations may prove to be groundbreaking relative to the locations (or absence thereof) of the true blue-ink original mortgage loan documents, i..e. Notes, Mortgages, Deeds of Trust.

Karyn Armstrong, stated under oath that in July and August 2013 she had spoken three times by telephone with Chase employee, Ashley Curry, of the Chase Executive Offices concerning the destruction of all the Washington Mutual Bank FA original loan documents after uploading.  These conversations took place after Chase Bank assigned Curry to investigate Armstrong's complaint regarding the Independent Foreclosure Review by Rust Consulting. During the course of their conversation Armstrong requested color blue-ink copies of the original loan documents.

Armstrong asked Curry what the status was of her request for colored copies of the original note, deed of trust and the rider that went with this loan. Armstrong learned from Ashley Curry that there was no way that Curry could get colored copies for Armstrong  because all the original loan documents were destroyed after being up-loaded into the Mortgage Electronic Registration System (MERS). Furthermore Armstrong learned from Curry that by law, MERS had to give her the documents and that Armstrong request them through the MERS process. This was very confusing to Armstrong because according to her black and white copies of the collateral file MERS is not the  beneficiary.  Curry stated that it did not matter if Armstrong's loan was associated with MERS because all Washington Mutual Bank, FA original notes, deeds of trust, and other legal documents were destroyed.

So where oh where have all the foreclosures gone?
Gone to courthouses and auction blocks nearly everyone . . .

When will they ever learn?  When will they ever learn?



THE AFFIDAVIT OF KARYN ARMSTRONG 

 Available on Pacer

Description: Image:312-0 Case Number: 10-05245
Billable Pages: 11 Cost: 1.10


I, Karyn Armstrong, state and affirm as follows:

1.   I am over the age of eighteen years, am of sound mind, have never been convicted of
a felony or crime of moral turpitude; I am competent in all respects to make this
declaration. I have personal knowledge of the matters declared herein, and if called to
testify to the same, I could and would competently testify thereto.
2.  This affidavit concerns statements made to me by Ashley Curry of the Chase
Executive Offices concerning the destruction of all Washington Mutual Bank FA
original loan documents after uploading.
3.  On June 17, 2013, I spoke on the telephone to Ashley Curry and learned me that she
was with the Chase Executive Offices and was assigned to investigate my complaint
regarding the Independent Foreclosure Review (IFR) by Rust Consulting.
4. I asked Ashley Curry what she needed from me in order to investigate my claim. I
learned that Ashley needed the notices of default and the bankruptcy discharge
documents. I was clear with her, that I started the bankruptcy process in early
December 2009 and the bankruptcy was not final until June 2010. I sent the
bankruptcy documents to her by email per her request.
5. During this phone call, I asked Ashley if she could send me a color copy of the
original note, deed of trust and the rider (the collateral file) for my loan. She told me
that she would look into it and get back to me.
6. On June 21, 2013, Ashley Curry called to let me know the findings of the IFR
investigation. I learned from her that the matter was resolved and my foreclosure
happened after the bankruptcy was final so the payment of $300 was correct.1 I
learned from Ashley that I might be able to appeal the decision and she stated that she
would get back to me.
1 This is not true. I was peppered with notices of default in 2009 and the early part of 2010 after I filed
bankruptcy.

7. I asked Ashley Curry what the status was of my request for colored copies of the
original note, deed of trust and the rider that went with this loan. I learned from her
that there was no way that she could get colored copies for me because all the original
loan documents were destroyed after being up-loaded into the Mortgage Electronic
Registration System (MERS).

8.  I learned from Ashley that by law, MERS had to give me the documents so I should
request them through the MERS process. This was very confusing to me because
according to my black and white copies of the collateral file MERS is not the
beneficiary. I learned from Ashley that it did not matter if my loan was associated
with MERS because all Washington Mutual Bank, FA original notes, deeds of trust,
and other legal documents were destroyed.

9.  The last time I spoke to Ashley was on July 11, 2013 when I learned from her that she
had received my email and the Chase attorneys were not finished. I did not hear
anything for a week. As of August 21, 2013, I have not received anything in the mail
responding to the letter that I sent to her on June 21, 2013 about the appeals process
for the Chase decision. I have called Ashley Curry leaving messages at least twice a
week. Her voicemail claims she will get back to all callers within 24 hours but as of
today (August 21, 2013) I have received no return call.
10.  I called Rust Consulting on August 21, 2013 and was told that my case # xxxxxxxxxxx
was closed, that the final decision was that the $300 payout was appropriate and that I
had no right to appeal their decision. However, I was not restricted from pursuing this
decision legally on my own. 


Further the Affiant Saith Naught.
Karyn Armstrong Affidavit

Sunday, August 25, 2013

Spiritual Inspiration for Dealing with the Banks




Isaiah 54: 17

No weapon formed against you shall prosper,
And every tongue which rises against you in judgment
You shall condemn.

Thursday, August 22, 2013

Can A (WaMu) Delaware Trust Foreclose On A Mortgage For The Benefit Of Certificate Holders Without Violating Delaware Trust Law?

 

Can A (WaMu) Delaware Trust Foreclose On A Mortgage For The Benefit Of Certificate Holders Without Violating Delaware Trust Law?

The Glaski decision was obviously a BIG victory for homeowners in California, and hopefully elsewhere. The gaffe on the part of the bank’s attorneys for allowing New York trust law rather than Delaware trust law  to control the WaMu securitization failure arguments is mind blowing (See: http://foreclosuredefenseschool.com/glaski-v-bank-of-america/)

Most of the WaMu securitized trusts were all set up under Delaware trust law. The following argument is made by Richard Kessler, Esq. in relation to a loan within the “WaMu 2007-OA3 Trust.” The language is similar to all the WaMu trusts, but be sure to check out the specific PSA language for each.


THE ARGUMENT:

No beneficiary has been identified.

The PSA defines a “Beneficial Holder” as: “A Person holding a beneficial interest in any Book-Entry Certificate as or through a DTC Participant or an Indirect DTC Participant or a Person holding a beneficial interest in any Definitive Certificate.” PSA at p. 28. 

Except under a few specific exceptions, such as conditions where a servicer must redeem or replace a mortgage, the servicer may not have a legal or equitable interest in the mortgages being serviced. The Trustee does not hold beneficial title according to the PSA. “Section 2.20 – Legal Title. Legal title to all assets of the Trust shall be vested at all times in the Trust as a separate legal entity.”

This Trust was organized as a Delaware Statutory Trust. The enabling legislation states that a certificate holder has an interest in the property which is personal and no further interest in specific trust property. The beneficiary according to Delaware Trust law does not have an undivided interest in the mortgages which are an interest in real property. 

 (Delaware) “§ 3805. Rights of beneficial owners and trustees in trust property.
….
 (c) A beneficial owner’s beneficial interest in the statutory trust is personal property notwithstanding the nature of the property of the trust. Except to the extent otherwise provided in the governing instrument of a statutory trust, a beneficial owner has no interest in specific statutory trust property.”
Here is where it gets very confusing. The Trust can hold the legal and beneficial title to the Mortgages under Delaware Law. However, in such a case, the Trust is not a REMIC trust and will not qualify for the pass through tax exemption. Alternatively, if the certificate holders hold the beneficial interest, it is limited to personal property and excludes an interest in real property. In such a case, there is no party holding a beneficial interest in a mortgage that stands in the shoes of the originating mortgagee.
A mortgage cannot be enforced for a beneficiary of a mortgage which does not have a legal existence. The Trust cannot foreclose on a mortgage in default for the benefit of the certificate holders without violating Delaware Trust law. If it forecloses on behalf of the Trust, it is in non-compliance with REMIC requirements.

SEC link to WaMu 2007-OA3 Trust’s PSA: http://www.secinfo.com/d16VAy.u86.d.htm#1stPage



Can A (WaMu) Delaware Trust Foreclose On A Mortgage For The Benefit Of Certificate Holders Without Violating Delaware Trust Law?

Sunday, August 18, 2013

CORVELLO v. WELLS FARGO BANK - WIN FOR HOMEOWNER IN MORTGAGE MODIFICATION,APPEAL, US DISTRICT COURT FOR NOTHERN DISTRICT OF CALIFORNIA

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT


PHILLIP R. CORVELLO,
Plaintiff-Appellant,
v. 

WELLS FARGO BANK, NA, DBA America’s Servicing Company, DBA Wells Fargo Home Mortgage,
Inc.,
Defendant-Appellee.

No. 11-16234
D.C. No.   3:10-cv-05072JSW 


KAREN LUCIA; JEFFREY LUCIA, on No. 11-16242 behalf of themselves and all others similarly situated, D.C. No. Plaintiffs-Appellants, 3:10-cv-04749JSW
v.
WELLS FARGO BANK, NA, AKA OPINION Wells Fargo Home Mortgage, Inc., Defendant-Appellee.


Appeal from the United States District Court for the Northern District of California 


Jeffrey S. White, District Judge, Presiding


CORVELLO V. WELLS FARGO BANK
Argued and Submitted
March 20, 2013—San Francisco, California
Filed August 8, 2013
Before: Mary M. Schroeder, John T. Noonan, and Mary H. Murguia, Circuit Judges.
Per Curiam Opinion;
Concurrence by Judge Noonan

SUMMARY


This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader. Home Affordable Modification Program.

 
The panel reversed the district court’s dismissals of diversity actions challenging the decision of Wells Fargo Bank not to offer permanent mortgage modifications to plaintiff borrowers.

The panel held that under the Home Affordable Modification Program the bank was contractually required to offer the plaintiffs a permanent mortgage modification after they complied with the requirements of a trial period plan (“TPP”). The panel held that the district court should not have dismissed the plaintiffs’ complaints when the record before it showed that the bank had accepted and retained the payments demanded by the TPP, but neither offered a permanent modification, nor notified plaintiffs they were not entitled to one, as required by the terms of the TPP.

Judge Noonan concurred in the judgment. 



COUNSEL

Timothy G. Blood, Leslie E. Hurst (argued) and Thomas J. O’Reardon, II, Blood Hurst & O’Reardon, LLP, San Diego, California; Andrew S. Friedman, Elaine A. Ryan and Patricia N. Syverson, Bonnett, Fairbourn, Friedman & Balint, P.C., Phoenix, Arizona; Todd D. Carpenter, Bonnett, Fairbourn,
Friedman & Balint, P.C., San Diego, California; James R. Patterson, Patterson Law Group, San Diego, California, for Plaintiff-Appellant Phillip R. Corvello.

 Brian R. Strange, Gretchen Carpenter (argued) and Adrian R. Bacon, Strange & Carpenter, Los Angeles, California; HernĂ¡n Vera, Public Counsel, Los Angeles, California, for Plaintiffs-
Appellants Karen Lucia and Jeffrey Lucia. Matthew G. Ball, K&L Gates LLP, San Francisco, California; Irene C. Freidel (argued) and David D. Christensen, K&L Gates LLP, Boston, Massachusetts, for Defendant-Appellee.


CORVELLO V. WELLS FARGO BANK
OPINION
PER CURIAM:


INTRODUCTION


The U.S. Department of the Treasury, acting under the direction of Congress, launched the Home Affordable Modification Program (“HAMP”) in 2009 to help distressed homeowners with delinquent mortgages, but the program seems to have created more litigation than it has happy homeowners. The issue we must decide is whether a bank was contractually required to offer the plaintiffs a permanent
mortgage modification after they complied with the requirements of a trial period plan (“TPP”). The district court held the bank was not, and we reverse.

Similar issues have arisen in both state and federal courts. We now follow the Seventh Circuit’s leading federal appellate decision, which came down after the district court’s ruling in this case, to hold that the bank was required to offer the modification. See Wigod v. Wells Fargo Bank, N.A.,
673 F.3d 547 (7th Cir. 2012). The district court should not have dismissed the plaintiffs’ complaints when the record before it showed that the bank had accepted and retained the payments demanded by the TPP, but neither offered a permanent modification, nor notified plaintiffs they were not entitled to one, as required by the terms of the TPP.

BACKGROUND

In response to the unfolding financial crisis of 2008, Congress passed the Emergency Economic Stabilization Act, Pub. L. No. 110-343, 122 Stat. 3765. This law included the Troubled Asset Relief Program (“TARP”), “which required the Secretary of the Treasury, among many other duties and powers, to ‘implement a plan that seeks to maximize assistance for homeowners and . . . encourage the servicers of the underlying mortgages . . . to take advantage of . . . available programs to minimize foreclosures.’” Wigod, 673 F.3d at 556 (quoting 12 U.S.C. § 5219(a)). Pursuant to this instruction, the Treasury Department in 2009 started the HAMP program to incentivize banks to refinance mortgages of distressed homeowners so they could stay in their homes. Home loan servicers, including Defendant-Appellee Wells Fargo Bank, N.A. (“Wells Fargo”), signed Servicer
Participation Agreements with Treasury that entitled them to $1,000 for each permanent modification they made, but required them to follow Treasury guidelines and procedures.

The process of applying for and receiving a permanent modification plays out in several steps, as set forth in Treasury Supplemental Directive 09-01 (“SD 09-01”), the controlling Treasury guideline during the events leading to this suit. First, borrowers supply information about their finances and their inability to pay their current mortgage to the servicer, and the servicer must evaluate whether the
borrowers qualify for a loan modification. SD 09-01. The servicer computes modified mortgage payments on the basis of the borrowers’ information. Id.

For borrowers who appear eligible to participate in HAMP, the servicer then prepares a TPP. The TPP requires borrowers to submit documentation to confirm the accuracy of their initial financial representations, and to make trial payments of the modified amount to the servicer. The servicer must use the documentation to “confirm that the borrower[s]” meet the eligibility criteria for a permanent modification. Id.

In the step most critical to this litigation, the servicer then must report to the borrowers the results of the eligibility determinations. Id. If a borrower does not qualify for the HAMP program, the servicer must not only alert the borrower, but must consider alternatives. The servicer should “promptly communicate that [ineligibility] determination to the borrower in writing and consider the borrower for another foreclosure prevention alternative.” Id. For borrowers who have made all their payments and whose representations remain accurate, the servicer must offer a permanent home loan modification. Id.

Wells Fargo never offered plaintiffs Phillip Corvello and Karen and Jeffrey Lucia a modification. They filed separate actions against Wells Fargo, and their cases were consolidated. Their situations differ factually in that Corvello’s dealings with Wells Fargo were in writing, while the Lucias dealt with the bank by phone. They both contend that they reached agreements with Wells Fargo whereby
Wells Fargo was required to offer them permanent mortgage modifications if they complied with the requirements of their trial plans, including proving their eligibility for the permanent modification and making the trial payments. If they did not qualify for the modification, their agreements required Wells Fargo to alert them immediately and end the period of trial payments. They allege that they complied with their trial plans and made the required payments, and should have been offered permanent modifications.

The district court dismissed both actions under Rule 12(b)(6), so we accept the allegations of the complaints as true. Kahle v. Gonzales, 487 F.3d 697, 699 (9th Cir. 2007). According to Corvello’s complaint, he provided Wells Fargo with his financial information via a financial worksheet in
June of 2009. Wells Fargo then sent him a TPP. The TPP stated in the first line that if Corvello’s representations were accurate and he complied with the terms of the trial plan, he would receive a modification offer. The TPP also, and on the same page, assured him, as it was required to do by the
applicable Treasury Directive, that the bank would tell him one way or another on his eligibility for a modification. It read:

If I am in compliance with this Loan Trial Period and my representations in Section 1 continue to be true in all material respects, then the Lender will provide me with a Loan Modification Agreement, as set forth in Section 3, that would amend and supplement (1) the Mortgage on the Property, and (2) the
Note secured by the Mortgage. . . . I understand that after I sign and return two copies of this Plan to the Lender, the Lender will send me a signed copy of this Plan if I qualify for the Offer or will send me written notice that I do not qualify for the Offer. Paragraph 2F of the TPP alerted the borrower to the obligations of the parties before there could be a permanent modification. It required, in addition to the borrower making the payments and maintaining the accuracy of the representations, that the servicer provide an executed copy of the TPP and Modification Agreement to the borrower. It stated as follows:

If prior to the Modification Effective Date, (i) the Lender does not provide me a fully executed copy of this Plan and the Modification Agreement; (ii) I have not made the Trial Period payments required under Section 2 of this Plan; or (iii) the Lender determines that my representations in Section 1 are no longer true and correct, the Loan Documents will not be modified and this Plan will terminate.

Paragraph 2G of the TPP stated that no modification would take effect until the borrower received a signed copy of the Modification Agreement. It read as follows:

I understand that the Plan is not a modification of the Loan Documents and that the Loan Documents will not be modified unless and until (i) I meet all of the conditions required for modification, (ii) I receive a fully executed copy of a Modification Agreement, and (iii) the Modification Effective Date has passed. . . .

After Corvello signed and returned the TPP, and despite the notification representation on the first page of the TPP, Wells Fargo, according to the complaint, never told Corvello whether he qualified for a modification. Corvello alleges he complied with the TPP’s terms, and made all three payments
on time. Wells Fargo still never offered him a permanent modification, nor did it notify him that he did not qualify. He seeks the permanent modification offer allegedly due him under the TPP agreement, and damages for the payments he made to Wells Fargo.

The Lucias’ interaction with Wells Fargo was materially similar to Corvello’s experience. They allege that Wells Fargo offered them a trial plan, with the promise of a permanent modification if they fully complied. They made all of the required payments and submitted the documents requested by Wells Fargo. Despite performance of their obligations under the TPP, they, like Corvello, claim Wells Fargo neither offered them a permanent modification, nor alerted them that they were ineligible for a modification. Instead, Wells Fargo foreclosed on their home and sold it. Their complaint seeks rescission of the foreclosure, an offer of permanent modification, and damages.

The plaintiffs filed their complaints in United States District Court for the Northern District of California, invoking that court’s diversity jurisdiction and seeking to apply California law. Their complaints alleged that because they complied with the obligations of their TPPs by submitting accurate documentation and making trial payments, there was an enforceable contract that bound the
servicer, Wells Fargo, to offer permanent modifications.

The district court concluded that accepting the plaintiffs’ allegations as true, the language of the TPP could not support a contract for a permanent loan modification. The court relied on Paragraph 2G of the TPP, which stated that the loan would not be modified “unless and until” the borrower received a “fully executed copy of a Modification Agreement.” It concluded that under that provision, the
bank’s promise to offer a permanent modification was conditioned on the bank’s sending the plaintiffs a signed Modification Agreement. Because the bank did not send the plaintiffs a signed Modification Agreement, the district court ruled that the bank was not required to offer a permanent
modification, and dismissed the claims for breach of contract.

Plaintiffs also alleged claims of promissory estoppel, breaches of the covenant of good faith and fair dealing, and violations of California’s Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200, et seq., and the Lucias further alleged a violation of the Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code § 1788.17. Because all these claims depended on a promise by the bank to offer a permanent modification if the plaintiffs met the conditions of the TPP, the district court dismissed them as well, and without leave to amend. Both Corvello and the Lucias appeal the dismissal of
all the claims.

DISCUSSION

The issue we must decide is whether the bank was contractually obligated under the terms of the TPP to offer a permanent modification to borrowers who complied with the TPP by submitting accurate documentation and making trial payments. State and federal courts have dealt with similar issues, in similar factual circumstances, in a number of cases. See Sutcliffe v. Wells Fargo Bank, N.A., 283 F.R.D. 533, 549–50 (N.D. Cal. 2012) (collecting cases).

The leading case on the contractual obligations of banks under TPP agreements is the Seventh Circuit’s decision in Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012). That court held that banks were required to offer permanent modifications to borrowers who completed their
obligations under the TPPs, unless the banks timely notified those borrowers that they did not qualify for a HAMP modification. Id. at 562–63. Other courts have since followed the reasoning of Wigod. See, e.g., Young v. Wells Fargo Bank, N.A., No. 12-1405, 2013 WL 2165262, at *6 (1st Cir. May 21, 2013); Sutcliffe, 283 F.R.D. at 549–52; West v. JPMorgan Chase Bank, N.A., 154 Cal. Rptr. 3d 285, 299 (Ct. App. 2013).

The Seventh Circuit in Wigod rejected the very proposition that Wells Fargo asserts here, and which the district court accepted when it concluded that there was no contract. Wells Fargo contends, as it did in Wigod, that Paragraph 2G of the TPP means there can be no contract unless the servicer sends the borrower a signed Modification Agreement. It points to the language in 2G stating that “the Loan Documents will not be modified unless and until . . . (ii) [the borrower] receive[s] a fully executed copy of a Modification Agreement.”

The Seventh Circuit rejected Wells Fargo’s position because it made the existence of any obligation conditional solely on action of the bank, and conflicted with other provisions of the TPP, including the bank’s promise to send the borrower a Modification Agreement if the borrower complied with the obligations under the TPP and the borrower’s representations continued to be true. Wigod, 673 F.3d at 563. Wells Fargo’s interpretation of the TPP was suspect because it allowed banks to avoid their obligations to borrowers merely by choosing not to send a signed Modification Agreement, even though the borrowers made both accurate representations and the required payments. As the Seventh Circuit put it, Wells Fargo’s interpretation would allow it to “simply refuse to send the Modification
Agreement for any reason whatsoever—interest rates went up, the economy soured, it just didn’t like [the Borrower]—and there would still be no breach . . . turn[ing] an otherwise straightforward offer into an illusion.” Id.

We believe the reasoning in Wigod is sound. Paragraph 2G cannot convert a purported agreement setting forth clear obligations into a decision left to the unfettered discretion of the loan servicer. The more natural and fair interpretation of the TPP is that the servicer must send a signed Modification
Agreement offering to modify the loan once borrowers meet their end of the bargain. Under Paragraph 2G of the TPP, there could be no actual mortgage modification until all the requirements were met, but the servicer could not unilaterally and without justification refuse to send the offer. As the Seventh Circuit stated in Wigod, the modification was not complete until all of the conditions were met, “but under paragraph 1 and section 3 of the TPP, Wells Fargo still had an obligation to offer [the borrower] a permanent modification once [the borrower] satisfied all [] obligations under the agreement.” Id. (emphasis in original). This interpretation of the TPP avoids the injustice that would result were Wells Fargo’s position accepted and Wells Fargo allowed to keep borrowers’ trial payments without fulfilling any obligations in return. The TPP does not contemplate such an unfair
result.

The Seventh Circuit in Wigod was applying Illinois contract law, and we deal with California law. There is now no material difference. In West, 154 Cal. Rptr. 3d at 299, the California Court of Appeal expressly adopted the reasoning of Wigod and concluded that the trial plan agreement in that case authorized banks, before offering a modification, to evaluate only whether borrowers had complied with the agreement’s terms and whether their representations remained true. Once the bank determined that a borrower had complied and the representations were still true, then the bank
was required by the agreement to offer a permanent modification. Id.

Wells Fargo contends, however, that West is not controlling because it is not a California Supreme Court decision and there is a conflict in the California Courts of Appeal. Wells Fargo cites Nungaray v. Litton Loan Servicing, LP, 135 Cal. Rptr. 3d 442 (Ct. App. 2011), as proof of this conflict, but Nungaray does not apply because the borrowers there had failed to submit the documents required by the TPP. Id. at 447 (the bank never “receive[d] the Nungarays’ complete financial information, despite sending the Nungarays’ counsel three letters requesting the information and returning one of the Nungarays’ payments for lack of accompanying financial information.”). Where, as here, borrowers allege, and we must assume, that they have fulfilled all of their obligations under the TPP, and the loan servicer has failed to offer a permanent modification, the borrowers have valid claims for breach of the TPP agreement. West, 154 Cal. Rptr. 3d at 299 (“Applying Wigod to this case,
‘[a]lthough [Chase Bank] may have had some limited discretion to set the precise terms of an offered permanent modification, it was certainly required to offer some sort of good-faith permanent modification to [West] consistent with HAMP guidelines. It has offered none.’” (quoting Wigod,
673 F.3d at 565)).

Wells Fargo also contends that Wigod is materially distinguishable, pointing to Paragraph 2F in the TPPs which states, among other things, that the trial plan will end if the borrower does not receive a signed copy of the TPP. In Wigod the bank actually sent the plaintiffs a signed copy of the TPP.

Wigod’s holding, however, does not turn on that fact, but instead on the bank’s failure to tell the borrowers that they did not qualify. The TPP gives the bank a chance, after borrowers submit the completed TPP, to notify them if they do not qualify. “Under the terms of the TPP Agreement,then, that moment [when Wells Fargo received the borrower’s TPP] was Wells Fargo’s opportunity to determine whether [the borrower] qualified. If [the borrower] did not, it could have and should have denied [the borrower] a modification on that basis.” Wigod, 673 F.3d at 562. This notification obligation is also set out in the applicable Treasury Directive. If after receiving the TPP the bank determines that a borrower is not eligible for a modification, the bank should “promptly communicate that determination to the borrower in writing and consider the borrower for another foreclosure prevention alternative.” SD 09-01. Wells Fargo’s own failure to fulfill the notification obligation does
not deprive plaintiffs of the benefits of their agreement.

Wells Fargo separately contends that the Lucias’ breach of contract claim cannot survive the statute of frauds because it is an oral agreement to modify a mortgage. The Lucias, however, have alleged full performance of their obligations under the contract. They therefore may enforce the remaining
promises. See Secrest v. Sec. Nat’l Mortg. Loan Trust 2002-2, 84 Cal. Rptr. 3d 275, 284–85 (Ct. App. 2008).

The Lucias’ complaint also contains a claim for violation of California’s Rosenthal Act, Cal. Civ. Code § 1788.17, the state’s version of the federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692e, 1692f. Wells Fargo concedes it is a debt collector under the meaning of the Rosenthal Act.
Wells Fargo contends, however, that it was not engaged in debt collection activities when it offered the TPP with its concomitant demand for trial payments. The district court, while dismissing the claim on other grounds, correctly recognized that Wells Fargo was engaged in debt collection. The TPP was more than an informational circulation. This is the same conclusion reached by other district courts. See In re Bank of Am. Home Affordable Modification Program (HAMP) Contract Litig., No. 10-MD-02193-RWZ, 2011 WL 2637222, at *6 (D. Mass. July 6, 2011); cf. Reyes v. Wells Fargo Bank, N.A., No. C-10-01667JCS, 2011 WL 30759, at *20 (N.D. Cal. Jan. 3, 2011).

As a final matter, we must reiterate that the district court granted Wells Fargo’s motion to dismiss the complaints under Rule 12(b)(6), so we therefore must accept the allegations of the complaints. In oral argument, Wells Fargo indicated that it did in fact determine that the plaintiffs were not qualified, and thus followed Treasury guidelines in choosing not to offer them permanent modifications. SD 09
01. We are unable to consider any such factual assertion on this record and at this stage of the proceedings. We are in the same position as the Seventh Circuit when it posited that Wells Fargo would offer this sort of defense, and similarly concluded that such a defense “presents a factual dispute that cannot be resolved [at the motion to dismiss stage].” Wigod, 673 F.3d at 579. We therefore must reverse the judgment and remand the case for further proceedings.

CONCLUSION

The district court’s judgment granting Wells Fargo’s motion to dismiss is REVERSED and REMANDED.

NOONAN, Circuit Judge, concurring:

Read as a whole the TPP between Corvello and Wells Fargo makes no sense. It is self-contradictory. Page one promised Corvello in two places that if his representations were accurate and if he were in compliance with the Trial Period Plan, the Lender “would provide” him “with a Loan Modification Agreement.” Paragraph 2G stated: “the Loan Documents will not be modified unless and until (i) I meet all of the conditions required for modification; (ii) I receive a fully executed copy of a Modification Agreement and (iii) the Modification Effective Date has passed.”

Wells Fargo drafted this document, and Wells Fargo must be held responsible for it. The document promises a substantial benefit to Corvello if he meets its terms. The document then makes these benefits illusory because they depend entirely on the will of Wells Fargo. To say, “I give $100 for your watch but I will decide whether I pay you $100” is not to make a contract but to engage in a flim-flam or, in plain words, to work a fraud. You promise so that the other will perform. You reserve your promise so that the promise is empty while you have gotten what you wanted from the promisee.

No purpose was served by the document Wells Fargo prepared except the fraudulent purpose of inducing Corvello to make the payments while the bank retained the option of modifying the loan or stiffing him. “Heads I win, tails you lose” is a fraudulent coin toss. Wells Fargo did no better.

According to the Lucias’ complaint, their dealings with Wells Fargo were oral. Ms. Lucia “was interviewed by phone  pre-approved for the [HAMP loan] modification.” She was informed that if she and her husband “sent in all the required documents and made all their payments on time, their reduced monthly payment would become permanent.” The Lucias allege that they made their “trial period plan payments as scheduled.” The bank foreclosed. These allegations are sufficient to make the Lucias’ position analogous to Corvello’s.

Confined as we are to the pleadings before us, I concur in the judgment of the court.