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Evidence Suggests MERS Was Conceived in a “Fraud Friendly” Way


Bank of America’s Assignment and Blank Endorsement Were Insufficient to Transfer Ownership Interest

2014-10-16 – Nash – Final Judgment

Bank of America, N.A. Successor by Merger to BAC Home Loans Servicing, LP fka Countrywide Home Loans Servicing, LP v. Nash, Case No. 49-2011-CA-004389, In the Circuit Court of the 18th Judicial Circuit, Seminole County, Florida

The Court finds that:

The Court finds that:

a.) America’s Wholesale Lender, a New York Corporation, the “Lender”,

Specifically named in the mortgage, did not file this action, did not appear at

Trial, and did not Assign any of the interest in the mortgage. ·

b.) The Note and Mortgage are void because the alleged Lender, America’s

Wholesale Lender, stated to be a New York Corporation, was not in fact

incorporated in the year 2005 or subsequently, at any time, by either

Countrywide Home Loans, or Bank of America, or any of their related

corporate entities or agents.

c.) America’s Wholesale Lender, stated to be a corporation under the laws of

New York, the alleged Lender in this case, was not licensed as a mortgage

lender in Florida in the year 2005, or thereafter, and the alleged mortgage loan

is therefore, invalid and void.

d.) America’s Wholesale Lender, stated to be a New Y ork Corporation, did not
have authority to do business in Florida under Florida Statute 607.1506 and
the alleged mortgage loan is therefore invalid and void.
e.) Plaintiff and its predecessors in interest had no right to receive payment on the
mortgage loan because the loan was invalid and therefore void because the
corporate mortgagee named therein, was non-existent, and no valid mortgage
loan was ever held by Plaintiff or its predecessors in interest. ·
f.) The alleged Assignment of Mortgage which purported to transfer interest in
this mortgage to BAC Home Loans Servicing, LP, FKA Countrywide Home
Loans Servicing, LP, as assignee, was invalid because Mortgage Electronic
Registrations Systems, Inc. (MERS), as nominee for America’s Wholesale
Lender had no authority to assign the ovmership interest of said mortgage,
because MERS was not the owner of the subject mortgage and was only a
nominee for America’s Wholesale Lender, an alleged New York Corporation
which was a non-existent Corporation. Said purported assignment was
without authority, and therefore invalid.
g.) Plaintiffs witness had no knowledge of who or what entity might have
instructed MERS as nominee, to attempt to assign or transfer any interest in
said mortgage, which in any event would have been invalid because that entity
(MERS) had no ownership interest in the mortgage and was merely named as
a nominee for the non-existent corporate m0rtgagee.
10. Based upon the foregoing, the Plaintiff, Bank of America, NA, has no standing to
bring this action. The Plaintiff has no legal right to attempt to claim ownership of the subject
Note and Mortgage, or any right as servicer, for some other unknown entity, and is without any
legal basis to attempt to foreclose the subject Mo1tgage, or to collect on the Mortgage Note,
because America’s Wholesale Lender, a New York Corporation, did not exist in 2005, and was
never formed as a Corporation by Plaintiff or its predecessors in· interest. The collection of
mortgage payments by the Plaintiff and its predecessors in interest, was therefore illegal and they
were without any legal right to receive and use or disburse the funds therefrom on behalf of any.
owner of the Note and Mortgage, or any other party.
11. Defendant is therefore entitled to recover from Plaintiff, all funds reflected on
Plaintiffs Exhibit 4 which Plaintiffs witness testified reflected the payment history of monies
paid by Defendant to Plaintiff or its predecessors in interest, because the subject note and
mo1tgage were invalid because the alleged mortgage lender did not exist and did not have the
legal right to receive and retain or disburse said funds.
12. Defendant is also entitled to recover from Plaintiff, all costs and attorney’s fees
incurred . . .

CFPB’s Action Against Flagstar Bank Included a Benching Remedy

Reuters reports in the Fiscal Times regarding special features of the newest regulatory action taken against Flagstar related to servicing default loans, with the full article here:

CFPB has in the past sanctioned mortgage servicers for similar violations, with limited success. This time, in addition to fining the bank
$37.5 million (the bulk of which will go to victims of Flagstar’s bad servicing, who also must be offered new loan modifications), CFPB
banned the company from acquiring new mortgage servicing rights, particularly for defaulted loans, until it can demonstrate its ability to
comply with the law.

This is enormous. There’s a healthy trade in the right to service loans in default, because new capital rules make them less attractive to large
banks, and because CFPB’s regulations are costly to follow. Because servicers don’t originate a massive amount of loans themselves, and
because consumers constantly refinance, pay off, or lose a loan to foreclosure, servicers must constantly purchase new servicing rights to
refresh their supply and stay in business.
But CFPB ordered Flagstar to not purchase any more default loan servicing until it figures out how to do it properly. This “benching remedy,”
as Georgetown law professor Adam Levitin calls it, can change the calculations for financial institutions over whether to commit a fraud,
where the potential penalty is usually less than the profit they can make. In this case, Levitin writes, “compliance can be costly, and being
taken out of the market can really squeeze the firm’s market position and potentially even its cashflow.”

Imagine applying this model to other parts of the financial services industry. Firms guilty of securities fraud could be barred from issuing that
set of securities. Companies making high-risk corporate loans outside regulatory guidelines could be stopped from making corporate loans
entirely. Banks caught laundering money for sanctioned organizations could be barred from U.S. dollar clearing operations, or from taking
new deposits. The message would come through clearly: Violate the law and you no longer get to participate in the business until you prove
you can do it legally.
Unfortunately, federal financial fraud sanctions typically follow a different path. Take the Justice Department’s vaunted settlements with big
banks for mortgage-backed securities violations. This week, a monitor released the latest review of how JPMorgan Chase has complied with
the “consumer relief” section of the settlement.
At the time of the deal, prosecutors touted consumer relief as a way to deliver principal reductions for struggling homeowners. But of the
46,404 borrowers helped by the settlement as of June 30, only 2,633 got principal reductions. JPMorgan satisfied most of its punishment by
making 39,445 loans to low- and moderate-income borrowers, and borrowers in disaster areas. Of the $7.6 billion in gross “relief,” $7.1
billion came through lending.

CFPB Takes Action Against Flagstar Bank for Loan Modification Abuses

SEP 29 2014

Prepared Remarks of CFPB Director Richard Cordray on the Flagstar Enforcement Action Press Call


Today the Consumer Financial Protection Bureau is taking its first enforcement action under the Bureau’s new mortgage servicing rules. We are entering an order against Michigan-based Flagstar Bank for violating those rules by failing borrowers and illegally blocking them from trying to save their homes. Flagstar took excessive time to process borrowers’ applications, did not tell them when their applications were incomplete, denied loan modifications to qualified borrowers, and illegally delayed finalizing permanent loan modifications. These unlawful practices caused many consumers to lose the homes they had been trying to save. That is wrong and it is unacceptable.

Mortgage servicers play a central role in homeowners’ lives because they bear responsibility for managing the loans. They are the link between a mortgage borrower and a mortgage owner. They collect and apply payments, work out modifications to the loan terms, and handle the difficult process of foreclosure. Importantly, consumers cannot take their business elsewhere. Instead, they are stuck with their mortgage servicer, whether they are treated well or poorly.

In January 2014, the Consumer Bureau’s new mortgage servicing rules took effect. These new regulations establish specific rules of the road for handling loss mitigation applications. Since we first announced these rules almost two years ago, we have made clear that we expect full compliance to clean up the problems that had been pervasive in this industry and caused so many people to lose their homes. Consumers must not be hurt by illegal servicing any more. When mortgage servicers fail to treat people fairly, we will vigorously enforce the law.

Like many other servicers, Flagstar found that its volume of applications for loss mitigation rose sharply as a result of the foreclosure crisis. Our investigation found that Flagstar was simply not equipped to handle the influx. For a time, it took the staff up to nine months to review a single application. In 2011, Flagstar had 13,000 active loss mitigation applications but had only 25 full-time employees and a third-party vendor in India reviewing them. The Bureau found that in Flagstar’s loss mitigation call center, the average wait time was 25 minutes and the average call abandonment rate was almost 50 percent. Flagstar also had a heavy backlog of loss mitigation applications.

To make things worse, we found that Flagstar would clear its backlog of applications by closing those with expired documents – even though the documents had expired because Flagstar sat on them for so long. We also found that consumers would turn in loan modification applications but would not hear whether they were approved for many months. Flagstar was supposed to send “missing document” letters to consumers so they could provide any missing information, but it often delayed or did not send them at all.

We also concluded that when Flagstar did evaluate a completed application, it did a poor job. For example, we believe it routinely miscalculated the incomes of borrowers. Because loss mitigation programs are heavily dependent on the borrower’s income, this kind of miscalculation can have grave consequences for consumers. We determined that Flagstar’s failures led to wrongful denials of loan modifications.

Furthermore, when Flagstar denied an application, it did not give homeowners a specific reason why. Under the Consumer Bureau’s new rules, mortgage servicers must provide the specific reason why a complete application for a loan modification is rejected. This gives consumers a chance to fix the problem and either reapply or appeal the rejection. It also gives consumers more control over what is happening and provides them with critical information so they can make informed choices.

Another new mortgage servicing right for certain homeowners is the right to appeal the denial of a loan modification. But Flagstar has been wrongly telling borrowers that they only have the right to appeal if they live in certain states. That is not true. It does not matter what state the consumer lives in.

Finally, for those consumers lucky enough to get a trial loan modification, Flagstar kept them in a sort of “trial mod purgatory” for far too long. Indeed, Flagstar needlessly prolonged trial periods, causing some borrowers’ loan amount under the modified note to increase and, in some cases, jeopardizing the potential for a permanent loan modification.

Struggling homeowners paid a heavy price, including losing the opportunity to save their homes, as a result of Flagstar’s illegal actions. These problems were compounded because consumers have almost nowhere to turn. In the mortgage servicing market, they could not take their business elsewhere but were stuck with whatever treatment they received from Flagstar.

As we have seen for many years now – and I have seen it in local government, state government, and now the federal government – mortgage servicing failures hurt homeowners. In many cases, we believe Flagstar deprived people of the ability to make an informed choice about how to save or sell their home, causing borrowers to drop out of the process entirely and driving them into foreclosure. A former manager testified that when borrowers got to an advanced stage of delinquency, “You can feel that they’ve given up. There’s no hope left.” Another former manager recalled a borrower who told him, “You know what? My home can just go to foreclosure. I’m not faxing any documentation anymore.”

To remedy these wrongs, the Consumer Bureau is ordering Flagstar to halt any further violations of federal law. Flagstar must pay $27.5 million to consumers whose loans were being serviced by Flagstar and who were subject to its unlawful practices. At least $20 million of this amount will go to victims of foreclosure. Flagstar must also engage in outreach to affected borrowers who were not foreclosed on and offer them loss mitigation options. Flagstar must halt the foreclosure process, if one is happening, during this outreach and qualification process. Flagstar also is barred from acquiring servicing rights for default loan portfolios until it demonstrates that it is able to comply with the laws that protect consumers during the loss mitigation process. In addition, Flagstar will make a $10 million payment to the Bureau’s Civil Penalty Fund.

The Bureau has been clear that mortgage servicers must follow our new servicing rules and treat homeowners fairly. Today’s action signals a new era of enforcement to protect consumers against the cost of servicer runarounds. The financial crisis is still fresh in our minds and too many homeowners continue to feel its effects. We need all mortgage servicers to understand that they must step up and follow the law. We are working very hard to fulfill this objective. Thank you.

Arizona Supreme Court Denies Review of Steinberger: Steinberger and Stauffer Stand as Lone Pillars of Hope in a Formerly Hopeless Situation for Arizona Homeowners

Yesterday was a good day for homeowners in Arizona, yet in a very quiet way.  Often in the law, it is the seemingly bone-dry incremental progress that can change the whole chess game.  I think most lawyers have expended some effort trying to explain their exuberance over a seemingly tiny development to  audiences including our own clients who are distinctively, “meh?” about it.  These kind of “victories” don’t lend themselves to splashy headlines, but they are the steady workhorses of our system of law.  One great appellate decision can wipe out hundreds of wrongly decided trial court decisions in a single bound.

We discussed a couple of important decisions by the Arizona Court of Appeals last year, the Stauffer case (deigning to read the unambiguous language of the Arizona statute prohibiting the recording of documents against real property that are false, groundless, forged, contain material misstatements, or are otherwise invalid, and recognize a very common sense principle that an owner of real property had a stake in bringing claims for false documents recorded against his own property, whether that real property was subject to a deed of trust or not), and Steinberger v. McVey, in which the dismissal on the pleadings (another whole story in itself, the perversion of notice pleading that had been going on in an apparent attempt to roughshod foreclose as many Arizona homes as possible) of various homeowner claims related to false authority, and false claims to the Note and Deed of Trust, and procedural an substantive unconscionability in modification terms and loan terms were at least reversed and remanded, with a reminder of the long-standing and inviolate principle that a plaintiff’s facts in a Complaint are taken as true , as long as they plausibly suggest facts and law supporting the claims, and are not just bald recitals of the claims with no supporting facts.

So the bank losers in the Steinberger case petitioned for the Arizona Supreme Court to review the case on almost every claim, imperiously claiming that the sky would essentially fall if the law were evenly applied in a pragmatic sense.  Why, argued the petitioners, should lofty bankers, aka loan servicers (especally loan servicers acting like shifty carnival-style grifters in conducting bait-and-switch modifications) have to be subject to the same negligence principles as everybody else.  Because after all, so the argument seemed to go, why should the homeowner’s sole banker contact, cloaked -at least seemingly, to the homeowner– as the decision-making authority authorized to decide the fate of the homeowner getting kicked to the curb, on a whim, why should this “Decider” have to tell the truth to the people it wielded such ill-deserved power over.  Remember, I am not exaggerating when I report that these loss mitigation employees sported such dubious resumes as being ex-convicts, GED-educated (at best) temporary employees hired by the banks in droves with no underwriting experience, no managerial experience, no prior job experience above a minimum-wage type gig and who were so cheaply bought off that a simple Olive Garden gift card would suffice to provide the incentive to deny and purge en masse numerous home owner loan modifications.  Your home for an unlimited pasta bowl.  Let them eat cake.

Yesterday, the Arizona Supreme Court denied the petition for review.  As such, Steinberger stands as the highest decision of an Arizona court on the specific issues raised in Steinberger and how they could maintain a claim for negligence per se, and other unfair practices.  One can draw an inference that these cases were not incorrectly decided, or at least not sufficiently to warrant the oversight of the Arizona Supreme Court.

Why should the federal court care?  Because Arizona state courts are the highest authority on state law claims.  When a federal court is deciding an issue of state law (exercising supplemental jurisdiction) it must estimate what the highest state court would hold on that issue.  The Arizona Supreme Court stopped short of hearing and reaffirming the holdings of both Stauffer and Steinberger.  But what this means is that those cases stand as the highest law, with the inference if not the imprimatur of the Arizona Supreme Court’s stamp of, if not approval, definitely not disapproval.

Alvarez v BAC — Negligence in Loan Modification–California Court of Appeals

Alvarez v. BAC Home Loans Serv., L.P., No A138443, 2014 WL ________ (Cal. Ct. App. -1st Dist. Aug. 14, 2014)(slip opinion).

Opinion here: 2014-a138443–alvarez v bac

BANA’s Liability for Countrywide


Ct. discusses existence of “aiding and abetting” liability and successor liability and found both were adequately pled


While plaintiffs do make the argument that Countrywide, as the assignee of plaintiffs’ promissory notes, became liable for fraud committed by Meridias, their claim is also based on the assertion that Countrywide is directly liable as an aider and abettor of the fraud. Defendants simply ignore and mischaracterize the allegations of the complaint. The complaint alleges that Countrywide is directly liable for the fraud because it dictated use of the deceptive loan documents by Meridias and directly engaged in deceptive marketing of the Option ARM loans. As the alleged successor in interest to Countrywide, Bank of America has assumed Countrywide’s liability.


Defendants also rely on the “general rule of successor nonliability [which] provides that where a corporation purchases, or otherwise acquires by transfer, the assets of another corporation, the acquiring corporation does not assume the selling corporation’s debts and liabilities.” (Fisher v. Allis-Chalmers Corp. Product Liability Trust (2002) 95 Cal.App.4th 1182, 1188.) However, this rule does not apply if, among other things, “the transaction amounts to a consolidation or merger of the two corporations.” (Ibid.) The allegations regarding the mergers between Bank of America and Countrywide set forth in the federal complaint are sufficient to defeat a challenge on the pleadings to defendants’ successor liability.



The fact that a false statement may be obviously false to those who are trained and experienced does not change its character, nor take away its power to deceive others less experienced. There is no duty resting upon a citizen to suspect the honesty of those with whom he [or she] transacts business. Laws are made to protect the trusting as well as the suspicious. [T]he rule of caveat emptor should not be relied upon to reward fraud and deception.” (Boschma, supra, 198 Cal.App.4th at p. 249.) Accordingly, the court erred in sustaining defendants demurrer to plaintiffs’ first cause of action for fraud.




As discussed above, plaintiffs have alleged delayed discovery sufficient to overcome the demurrer. Similarly, for the reasons discussed above, the cause of action is not defeated by defendants’ assertion that they cannot be held responsible for fraud committed by Meridias. Finally, the complaint alleges that plaintiffs suffered harm sufficient to establish standing under the UCL. The allegations regarding the foreclosure of at least some of plaintiffs’ properties, as well as the allegations of lost equity, are sufficient to allege, if not to prove, economic injury under section 17200. (Boschma, supra, 198 Cal.App.4th at p. 254; see Rosenfeld v. JPMorgan Chase Bank, N.A. (N.D.Cal. 2010) 732 F.Supp.2d 952, 973; Sullivan v. Wash. Mut. Bank, FA (N.D.Cal. Oct. 23, 2009, No. C-09-2161) 2009 U.S. Dist. LEXIS 104074 at pp. *4-5; Rabb v. BNC Mortg., Inc. (C.D.Cal. Sept. 21, 2009, No. CV 09-4740 AHM (RZx)) 2009 U.S. Dist. LEXIS 92061, at p. *2.)



Contrary to defendants’ characterization, plaintiffs do not allege that defendants owed plaintiffs a duty to offer or approve a loan modification. Rather, they allege that defendants owed them a duty to exercise reasonable care in the review of their loan modification applications once they had agreed to consider them. The complaint alleges (albeit awkwardly) that defendants “undertook to review” plaintiffs’ loans for potential modification under the federal Home Affordable Modification Program (HAMP) and that having done so they owed plaintiffs the duty to exercise reasonable care in processing and reviewing their applications for loan modifications in accordance with the federal HAMP guidelines.


As a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money. (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1095-1096, citing Wagner v. Benson (1980) 101 Cal.App.3d 27, 34-35 [A “special relationship” between a lender and borrower exists only in those situations “when the lender ‘actively participates’ in the financed enterprise ‘beyond the domain of the usual money lender.’ ”]; see Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182, 206 [“No fiduciary duty exists between a borrower and lender in an arm’s length transaction”].) However,“[e]ven when the lender is acting as a conventional lender, the no-duty rule is only a general rule.” (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 901 (Jolley).) “ ‘Nymark does not support the sweeping conclusion that a lender never owes a duty of care to a borrower. Rather, the Nymark court explained that the question of whether a lender owes such a duty requires “the balancing of the ‘Biakanja factors.’ ” ’ ” (Id. at p. 901.)5 Citing recent federal authority, the court in Jolley agreed with the observation that “Nymark and the cases cited therein do not purport to state a legal principle that a lender can never be held liable for negligence in its handling of a loan transaction within its conventional role as a lender of money.” (Id. at p. 902, citing Ottolini v. Bank of America (N.D.Cal., Aug. 19, 2011, No.




The court in Lueras, however, granted plaintiffs leave to amend to allege a cause of action for negligent misrepresentation. The court held that while a lender does not have a duty to offer or approve a loan modification, “a lender does owe a duty to a borrower to not make material misrepresentations about the status of an application for a loan modification or about the date, time, or status of a foreclosure sale.” (Lueras v. BAC Home Loans Servicing, LP. at p. 68.) The court explained, “It is foreseeable that a borrower might be harmed by an inaccurate or untimely communication about a foreclosure sale or about the status of a loan modification application, and the connectionbetween the misrepresentation and the injury suffered could be very close.” (Id. at pp. 68-69.)


The opinion in Lueras cited numerous federal district court opinions that conclude a lender owes no duty of care to a borrower to modify a loan. (Lueras v. BAC Home Loans Servicing, LP, supra, 221 Cal.App.4th at pp. 64-65.)6 The court also cited other district court decisions recognizing that a lender does owe a borrower a duty of care in negotiating or processing an application for a loan modification. (Id. at pp. 64-65.)

7 Ansanelli v. JP Morgan Chase Bank, N.A. (N.D.Cal., Mar. 28, 2011, No. C 10–03892 WHA) 2011 U.S. Dist. Lexis 32350, pp. *21–*22 [“allegation that lender offered plaintiffs a loan modification and ‘engage[d] with them concerning the trial period plan’ was sufficient to create duty of care”]; Watkinson v. Mortgage IT, Inc. (S.D.Cal. June 1, 2010) 2010 U.S. Dist. Lexis 53540, pp. *23–24 [duty of care found where bank knowingly misstated borrower’s income and value of property on loan application, and where borrower sought but was denied a loan modification]; Becker v. Wells Fargo Bank, N.A., Inc. (E.D.Cal., Nov. 30, 2012, No. 2:10–cv–02799 LKK KJN PS) 2012 U.S. Dist.  Lexis 170729, pp. *34–*35 [complaint stated claim against lender for negligence during the loan modification process]; Crilley v. Bank of America, N.A. (D. Hawaii, Apr. 26, 2012, No. 12–00081 LEK–BMK) 2012 U.S. Dist. Lexis 58469, p. *29 [denying motion to dismiss because plaintiffs “have pled sufficient facts to support a finding that Defendant went beyond its conventional role as a loan servicer by soliciting Plaintiffs to apply for a loan modification and by engaging with them for several months” regarding the modification]; Garcia v. Ocwen Loan Servicing, LLC (N.D. Cal., May 10, 2010, No. C 10–0290 PVT) 2010 U.S. Dist. Lexis 45375, pp. *7–*11 [plaintiff's allegations of lender's conduct in handling application for loan modification pleaded a duty of care].)


Garcia v. Ocwen Loan Servicing, LLC, supra, 2010 U.S. Dist. Lexis 45375, pages *7–*11, is representative of those cases that have found that the Biakanja factors weigh in favor of imposing a duty of care on a lender that undertakes to review a loan for potential modification. The court explained, “Based on the foregoing factors,[the lender] arguably owed Plaintiff a duty of care in processing Plaintiff’s loan modification application, as at least five of the six factors weigh in favor of finding a duty of care. [¶] The transaction was unquestionably intended to affect Plaintiff. The decision on Plaintiff’s loan modification application would determine whether or not he could keep his home. [¶] The potential harm to Plaintiff from mishandling the application processing was readily foreseeable: the loss of an opportunity to keep his home was the inevitable outcome. Although there was no guarantee the modification would be granted had the loan been properly processed, the mishandling of the documents deprived Plaintiff of the possibility of obtaining the requested relief. [¶] The injury to Plaintiff is certain, in that he lost the opportunity of obtaining a loan modification and . . . his home was sold. [¶] There is a close connection between Defendant’s conduct and any injury actually suffered, because, to the extent Plaintiff otherwise qualified and would have been granted a modification, Defendant’s conduct in misdirecting the papers submitted by Plaintiff directly precluded the loan modification application from being timely processed. [¶] The existence of a public policy of preventing future harm to home loan borrowers is shown by recent actions taken by both the state and federal government to help homeowners caught in the home foreclosure crisis. See, e.g., CAL.CIV.CODE § 2923.6 (encouraging lenders to offer loan modifications to borrowers in appropriate circumstances); see also, Press Release at (“Gov. Schwarzenegger Signs Legislation to Provide Greater Assistance to California Homeowners”), and (describing the federal “Making Home Affordable Program”). [¶] Whether or not moral blame attaches to this Defendant’s specific conduct is not clear at this stage of the proceedings. However, in light of the other factors weighing in favor of finding a duty of care, the uncertainty regarding this factor is insufficient to tip the balance away from the finding of a duty of care.”

We find the Garcia court’s reasoning persuasive and applicable to the facts alleged in the present case. Here, because defendants allegedly agreed to consider modification of the plaintiffs’ loans, the Biakanja factors clearly weigh in favor of a duty. The transaction was intended to affect the plaintiffs and it was entirely foreseeable that failing to timely and carefully process the loan modification applications could result in significant harm to the applicants. Plaintiffs allege that the mishandling of their applications “caus[ed] them to lose title to their home, deterrence from seeking other remedies to address their default and/or unaffordable mortgage payments, damage to their credit, additional income tax liability, costs and expenses incurred to prevent or fight foreclosure, and other damages.” As stated in Garcia, “Although there was no guarantee the modification would be granted had the loan been properly processed, the mishandling of the documents deprived Plaintiff of the possibility of obtaining the requested relief.” (Garcia, supra, 2010 U.S. Dist. Lexis 45375, p. *9.) Should plaintiffs fail to prove that they would have obtained a loan modification absent defendants’ negligence, damages will be affected accordingly, but not necessarily eliminated. With respect to whether defendants’ conduct was blameworthy—the fifth Biakanja factor—it is highly relevant that the borrowers “ability to protect his own interests in the loan modification process [is] practically nil” and the bank holds “all the cards.” (Jolley, supra, 213 Cal.App.4th at p. 900.) As explained in the amicus curiae brief filed by Housing and Economic Rights Advocates et al.: “Traditional mortgage lending involved a bank evaluating a borrower and her security, and issuing a loan with terms reflecting the perceived risk that the borrower would default. The same bank would then(i) retain the loan, making its profit on the interest the borrower paid; and (ii) service the loan, meaning that it would be in contact with the borrower directly, collecting the borrower’s payments and negotiating any changes in loan terms. See Eamonn K. Moran, Wall Street Meets Main Street: Understanding the Financial Crisis (2009) 13 N.C. Banking Inst. 5, 32 (“ ‘Traditionally, banks managed loan “from cradle to grave” as they made mortgage loans and retained the risk of default, called credit risk, and profited as they were paid back.’ ”) [citation omitted]. [¶] These tasks have been dispersed among different actors in the modern mortgage servicing context, however, changing the relationships between the borrower, the loan originator, the ultimate holder of the loan, and the servicer of the loan. [¶] First, borrowers are captive, with no choice of servicer, little information, and virtually no bargaining power. Servicing rights are bought and sold without input or approval by the borrower. Borrowers cannot pick their servicers or fire them for poor performance. The power to hire and fire is an important constraint on opportunism and shoddy work in most business relationships. But in the absence of this constraint, servicers may actually have positive incentives to misinform and under-inform borrowers. Providing limited and low-quality information not only allows servicers to save money on customer service, but increases the chances they will be able to collect late fees and other penalties from confused borrowers.”

The borrower’s lack of bargaining power coupled with conflicts of interest that exist in the modern loan servicing industry provide a moral imperative that those with the controlling hand be required to exercise reasonable care in their dealings with borrowers seeking a loan modification. Moreover, the allegation in the complaint that defendants engaged in “dual tracking,” which has now been prohibited (see Civ. Code, §§ 2923.6, 2924.18) increases the blame that may properly be assigned to the conduct alleged in the complaint. (Jolley, supra, 213 Cal.App.4th at p. 901.)

The policy of preventing future harm also strongly favors imposing a duty of care on defendants. As noted in Jolley, supra, 213 Cal.App.4th at page 903, “[T]he California Legislature has expressed a strong preference for fostering more cooperative relations between lenders and borrowers who are at risk of foreclosure, so that homes will not be

Judge Spinner Spins LaSalle Bank and Friends Around on New York Foreclosure Case

This New York foreclosure opinion from Tuesday, August 12, 2014, LaSalle Bank N.A. v. Dono, has some classic moments from Judge Spinner.  This is a New York judicial foreclosure case so the Plaintiff is LaSalle Bank, as trustee for the mortgage-backed trust, blah, blah, blah (yeah, okay), and the Defendant is the homeowner, who tried to modify umpty-million times, like everybody else, and to participate in a good faith settlement conference.

In essence, Defendant asserts, without any factual or admissible contravention by Plaintiff, that since at least October 1, 2010, he has fully complied with each and every document request received from Plaintiff’s various loan servicers, each of whom, it is claimed, have acted in bad faith. Defendant claims, again without contraversion by Plaintiff, that the real property that secures the loan has an approximate fair market value of $ 317,265.00 juxtaposed against a claimed balance due of $ 676,361.45. Defendant further states, once again without opposition, that Plaintiff has unreasonably and wrongfully delayed these proceedings by interposing multiple and duplicitous document demands, that Plaintiff and its servicers have willfully failed to comply with the applicable HAMP guidelines, to which its initial servicer was subject, by offering a “modified” payment equal to 70% of his gross monthly income while knowing that the “cap” was set at 31% within those guidelines, that Plaintiff surreptitiously conveyed the loan to a different, non-HAMP servicer so as to avoid being subject to the HAMP guidelines and which also caused the process to start anew, that Plaintiff failed and neglected to provide HAMP-compliant denials, that Plaintiff refused to consider Defendant’s reasonable counter-offer which fell well within HAMP guidelines and finally, that Plaintiff has refused to negotiate, instead propounding a “take it or leave it” modification which contained unconscionable terms including a waiver of defenses, counterclaims and setoff together with a reverter clause in the nature of a penalty. While Defendant’s sworn averments are supported by efficacious documentation together with Affirmations from two respected attorneys who possess actual and personal knowledge of this particular matter (both attorneys have appeared before the undersigned on multiple occasions with respect to this matter), Plaintiff has failed to submit any evidence whatsoever in opposition, instead relying upon counsel’s cavalier Affirmation.

Plaintiff’s opposition, distilled to its essence, consists solely of counsel’s stentorian albeit factually unsupported assertions that inasmuch as a mortgage is a contract, the Court may neither interfere with nor modify its terms; that since this proceeding is one sounding in equity this Court is bound to comply with the rules of equity (and hence must rule in Plaintiff’s favor), citing IndyMac Bank F.S.B. v. Yano-Horoski 78 AD3d 895 (2nd Dept. 2010) and Bank of America v. Lucido 114 AD3d 714 (2nd Dept. 2014), among others; that the Court may not force a settlement upon the parties; and finally, counsel refers this Court to the decision of a court of co-ordinate jurisdiction in such a manner as to strongly suggest that said opinion is controlling herein. Counsel urges this Court to summarily deny the relief sought by Defendant, stating that Plaintiff has asked for nothing more than that the note and mortgage be strictly enforced according to their terms and further, that it is Defendant who has acted in bad faith. None of these meretricious assertions are supported by so much as a scintilla of evidence and indeed, they are both factuallly inaccurate and decidedly fallacious. Counsel fails and neglects to substantively address any of Defendant’s efficacious claims, instead stridently admonishing this Court that it may not act in a manner that is based upon sympathy, citing Graf v. Hope Building Corp. 254 NY 1 (1930) and further strongly admonishing this Court that in view of the clear language of the note and mortgage, that this Court is “…not at liberty to revise while professing to construe” citing Sun Printing & Publishing Ass’n v. Remington Paper & Power Co. 235 NY 338 (1923).

Interestingly, the Affirmation of Plaintiff’s counsel does not state the basis upon which his bald and unsupported statements are based, other than his position as an associate with Plaintiff’s successor counsel. Again, the opposition submitted is quite conspicuous for its complete absence of any Affidavit of a party with actual knowledge herein and as counsel surely must be aware, an Affirmation of counsel, absent proof of actual first-hand knowledge, is wholly devoid of probative value, Barnet v. Horwitz 278 AD 700 (2nd Dept. 1951).

In accord with the ruling of the Appellate Division in US Bank N.A. v. Sarmiento, supra, close and careful examination and consideration of the totality of the circumstances reveals that Defendant has fully complied with Plaintiff’s various document demands on multiple occasions, that Defendant and/or his counsel have appeared on at least 24 occasions before the undersigned with respect to mandatory settlement conferences, that Plaintiff has failed to comply with the HAMP guidelines by offering a “modification” which was facially and obviously not affordable and which exceeded the applicable housing expense ceiling by 39%, that Plaintiff failed and refused to negotiate at all with Defendant, that Plaintiff failed and refused to produce a representative in court despite a Court order to do so, that Plaintiff conveyed the loan to a different servicer which engendered further delay in that the process had to begin anew, all of which has inured to the detriment of Defendant. Since October 1, 2010, interest has continued to accrue at an adjustable rate of not less (and possibly greater) than 8.2% together with the accrual of added costs, disbursements and, presumably, a claim for reasonable counsel fees.

Based upon the totality of circumstances, this Court is constrained to find that Plaintiff, and the servicers acting upon its behalf, have acted in bad faith throughout the mandatory settlement conference process, as “bad faith” has been defined in US Ban k N.A. v. Sarmiento, supra, thus inexorably warranting the granting of Defendant’s application.

It is, therefore,

ORDERED that Defendant’s application shall be and is hereby granted in its entirety; and it is further

ORDERED that all interest, disbursements, costs and attorneys fees which have accrued upon the loan at issue since October 1, 2010 shall be and the same are hereby permanently abated, shall not be a charge on account of or to the detriment of Defendant and that Plaintiff and any assignee is forever barred, prohibited and foreclosed from recovering the same from Defendant; and it is further

ORDERED that such abatement shall continue in futuro and that no further interest, disbursements, costs or attorney’s fees shall accrue or be chargeable to Defendant absent further Order of this Court; and it is further

ORDERED that any relief not expressly granted herein shall be and is hereby denied; and it is further

ORDERED that Defendant’s counsel shall, within twenty one days after entry hereof, serve a copy of this Order with Notice of Entry upon all parties in this action as well as all counsel who have appeared in [*4]this action.


The judge granted the homeowner’s request for an Order tolling interest and other costs on the mortgage debt, asserting that [LaSalle and servicers] has failed to negotiate in good faith, as mandated by CPLR § 3408.