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.

SIGTARP Schools Treasury on Repeated Failure to Protect Homeowners Instead of Servicers With TARP Money

Highlights from the Special Inspector General for TARP’s latest Report:



TARP’s signature housing program, HAMP, has not provided enough sustainable

foreclosure relief given the unspent TARP funds that Treasury has set aside.

HAMP’s foreclosure relief is only sustainable if the homeowner does not fall out

of the permanent mortgage modification during the five year period, increasing the

risk of foreclosure.

As of June 30, 2014, only 958,549 homeowners were active in a HAMP

permanent modification. Treasury continues to extend the application period

for MHA programs such as HAMP, and did so again on June 26, 2014, further

extending MHA programs for another year, through December 31, 2016.

An extension of HAMP’s timeframe is not enough on its own to bring about

meaningful change, particularly as hundreds of thousands of homeowners who got

into HAMP, fell prematurely out of the program. Treasury must help homeowners

using TARP with the same effort it put toward bailing out banks, the auto

companies, and AIG. Hopefully, Treasury’s HAMP extension reflects a realization

that Treasury has not, in fact, provided sustainable foreclosure relief to enough

homeowners using TARP. With approximately $15.7 billion in TARP funds for

HAMP sitting unspent, Treasury has ample resources to help the tens of thousands

of homeowners still applying each month for a HAMP modified mortgage.

During the month of May 2014 alone, more than 87,000 struggling homeowners

continued to seek help through HAMP.

Treasury needs meaningful reform to HAMP to dramatically change the current

levels of HAMP assistance reaching homeowners. Treasury should constantly

explore ways to improve HAMP rather than relying on servicers to act differently

than they acted in the past. SIGTARP is committed to working with Treasury to

ensure the efficiency and effectiveness of TARP and to prevent fraud, waste, and

abuse of taxpayers’ dollars funding HAMP. Through SIGTARP’s investigations,

hotline, and otherwise, SIGTARP has learned about the difficulties homeowners

continue to experience while trying to get into HAMP, particularly based on alleged

misconduct by HAMP servicers, and has reported on these difficulties publicly on

several occasions. This quarter, SIGTARP reported on the results of a SIGTARP

criminal investigation, conducted with its law enforcement partners, and a nonprosecution

agreement with TARP recipient, SunTrust Banks, Inc., the parent of

SunTrust Mortgage, Inc., (collectively, “SunTrust”).

SIGTARP’s criminal investigation of SunTrust’s administration of its HAMP

program revealed that SunTrust made material misrepresentations and omissions

to homeowners in HAMP solicitations. SunTrust did not have adequate personnel,

infrastructure, or technological resources in place to process the paperwork,

render decisions, and communicate with and about homeowners, as represented

in 2009 and 2010. Because SunTrust’s HAMP program was under-resourced and

under-funded, month after month, a backlog of tens of thousands of homeowners

were left waiting to apply for HAMP, waiting for SunTrust to send a trial period

agreement, or waiting to hear whether they qualified for their much-needed

mortgage relief. For example, SunTrust put piles of unopened homeowners’ HAMP

applications and paperwork on an office floor until the floor buckled under the

sheer weight of the unopened HAMP applications. SunTrust lost documents and

paperwork. SunTrust mass-denied some homeowners for HAMP without reviewing

their HAMP applications. SunTrust lied to Treasury about the reasons for the

denials. Rather than rendering decisions on a permanent modification within the

three- to four-month trial period SunTrust represented, some homeowners were

stuck in limbo in extended trial modifications of two or more years. SunTrust

misreported current homeowners as delinquent to major credit bureaus. In

other instances, SunTrust denied HAMP modifications to eligible homeowners

and instead placed the homeowners in alternative, private modifications that

were less favorable. SunTrust improperly commenced foreclosure proceedings

on homeowners in active HAMP trial periods, and some of those homeowners

saw their homes listed by SunTrust for sale in local newspapers. As a result of

SunTrust’s mismanagement of HAMP, thousands of homeowners who applied for a

HAMP modification with SunTrust suffered serious financial harm. Homeowners

would have been exponentially better off having never applied for HAMP through

the bank in the first place.

SunTrust’s management of the program harmed the homeowners that HAMP

was designed specifically to assist. Real people lost their homes, and many others

faced financial ruin. SIGTARP and its law enforcement partners continue to root

out fraud related to TARP’s housing programs and will hold those responsible

accountable. These law enforcements efforts will hopefully deter future

misconduct and, where necessary, force institutions to change their culture.

SIGTARP is concerned that similar misconduct, negligence, or poor, shoddy

performance by servicers that does not rise to the level of violating the law, could

be preventing struggling homeowners eligible for HAMP from obtaining available

relief. SIGTARP spotlights one of those issues this quarter in a special report on

the more than 221,000 homeowners that have applied for HAMP but are still in

limbo, with no decision from their servicer.

To enact meaningful change in TARP’s housing programs, Treasury should first

start by implementing SIGTARP’s many ignored recommendations. Since 2009,

SIGTARP has made 50 recommendations to Treasury concerning improvements

to TARP’s housing programs and to prevent fraud, waste, and abuse of taxpayer

dollars used to support struggling homeowners. While Treasury has implemented

some of SIGTARP’s recommendations, 44 of those 50 recommendations (88%)

remain unimplemented. SIGTARP’s recommendations are based on concerns we

uncover in our investigations, audits, public hotline, and other oversight activities.

We cannot always share our findings with Treasury, for example, when we are

conducting a confidential criminal investigation. Any reasons Treasury has given for

not implementing SIGTARP’s recommendations are not good enough.

SIGTARP has issued a series of recommendations aimed at the process by

which a homeowner gets into HAMP. For example, SIGTARP has previously


  • Treasury should establish benchmarks and goals for acceptable program

performance for all MHA servicers, including the length of time it takes for trial

modifications to be converted into permanent modifications, the conversion rate

for trial modifications into permanent modifications, the length of time it takes

to resolve escalated homeowner complaints, and the percentage of required

modification status reports that are missing.

Implementing this recommendation could have gone a long way to fix the

extended trial periods at SunTrust. Moreover, the concern extends beyond

SunTrust. Treasury’s HAMP data shows that thousands of homeowners across

multiple servicers are in trial periods of six months or more. This is not always the

homeowner’s fault. Benchmarks for acceptable performance brings accountability

if the servicer denies the homeowner permanent assistance after being in a lengthy

trial period. After such a lengthy trial period, the homeowner could owe a balloon

payment of the total amount difference between the mortgage payments and the

trial period payments. That required payment could be so large that it is impossible

to make, leaving the homeowner headed towards foreclosure. For example, the

latest data collected by Treasury from the 137 HAMP servicers with active trial

modifications indicates that the average monthly savings from homeowners in trial

periods lasting six months or longer was $472. If servicers deny that homeowner

permanent HAMP assistance at the end of the six month period, the average

homeowner would have to pay $2,835. Treasury’s data indicates that the payment

could be much higher. In one of several similar examples, a homeowner who is

saving $3,351 per month and has been in a trial modification since December

2011 could be required to pay back almost $100,000 if rejected from HAMP.

Worse yet, some homeowners were current on payments when they entered HAMP

trial modifications, but after being denied permanent modifications, were worse off

than if they had not applied at all.


SIGTARP’s recommendations are designed to help protect homeowners,

including the following recommendations that have not been implemented by

Treasury, to help additional homeowners get a permanent mortgage modification

from HAMP:

Treasury should publicly assess the top 10 MHA servicers’ program performance

against acceptable performance benchmarks in the areas of: the length of time

it takes for trial modifications to be converted into permanent modifications, the

conversion rate for trial modifications into permanent modifications, the length

of time it takes to resolve escalated homeowner complaints, and the percentage

of required modification status reports that are missing.

  • Treasury must ensure that all servicers participating in MHA comply with

program requirements by vigorously enforcing the terms of the servicer

participation agreements, including using all financial remedies such as

withholding, permanently reducing, and clawing back incentives for servicers

who fail to perform at an acceptable level. Treasury should be transparent and

make public all remedial actions taken against any servicer.

  • Treasury should stop allowing servicers to add a risk premium to Freddie Mac’s

discount rate in HAMP’s net present value test.

  • Treasury should ensure that servicers use accurate information when evaluating

net present value test results for homeowners applying to HAMP and should

ensure that servicers maintain documentation of all net present value test

inputs. To the extent that a servicer does not follow Treasury’s guidelines on

input accuracy and documentation maintenance, Treasury should permanently

withhold incentives from that servicer.

  • Treasury should require servicers to improve their communication with

homeowners regarding denial of a HAMP modification so that homeowners can

move forward with other foreclosure alternatives in a timely and fully informed

  1. To the extent that a servicer does not follow Treasury’s guidelines on

these communications, Treasury should permanently withhold incentives from

that servicer.

  • To ensure that homeowners in HAMP get sustainable relief from foreclosure,

Treasury should research and analyze whether and to what extent the conduct

of HAMP mortgage servicers may contribute to homeowners redefaulting

on HAMP permanent mortgage modifications. To provide transparency and

accountability, Treasury should publish its conclusions and determinations.

  • Treasury should publicly assess and report quarterly on the status of the ten

largest HAMP servicers in meeting Treasury’s benchmark for an acceptable

homeowner redefault rate on HAMP permanent mortgage modifications,

indicate why any servicer fell short of the benchmark, require the servicer to

make changes to reduce the number of homeowners who redefault in HAMP,

and use enforcement remedies including withholding, permanently reducing, or

clawing back incentive payments for any servicer that fails to comply in a timely

  1. manner.
  • In order to protect against the possibility that the extension and expansion of

HAMP will lead to an increase in mortgage modification fraud: (a) Treasury

should require that servicers provide the SIGTARP/CFPB/Treasury Joint Task

Force Consumer Fraud Alert to all HAMP-eligible borrowers as part of their

monthly mortgage statement until the expiration of the application period for

HAMP Tier 1 and 2; and (b) Treasury should undertake a sustained public

service campaign as soon as possible both to reach additional borrowers who

could potentially be helped by HAMP Tier 2 and to arm the public with

complete, accurate information about the program to avoid confusion and delay,

and to prevent fraud and abuse.

  • Given the expected increase in the volume of HAMP applications due to the

implementation of HAMP Tier 2, Treasury should convene a summit of key

stakeholders to discuss program implementation and servicer ramp-up and

performance requirements so that the program roll-out is efficient and effective.

SIGTARP made recommendations designed to curb the growing number of

homeowners who fall out of a HAMP permanent modification prematurely. If the

current trend continues, large percentages of homeowners will continue to fall out

of HAMP permanent mortgage modifications and Treasury will have missed an

opportunity to use TARP to provide sustainable relief to as many homeowners as

possible. For example, SIGTARP recommended:

  • Treasury should conduct in-depth research and analysis to determine the

causes of redefaults of HAMP permanent mortgage modifications and the

characteristics of loans or the homeowner that may be more at risk for redefault.

Treasury should require servicers to submit any additional information that

Treasury needs to conduct this research and analysis. Treasury should make the

results of this analysis public and issue findings based on this analysis, so that

others can examine, build on, and learn from this research.

Although Treasury has agreed to implement this important recommendation,

the results of Treasury’s ongoing efforts remain unclear and unknown. Meanwhile,

homeowners continue to redefault from HAMP. Since SIGTARP made that

recommendation in April 2013, more than 85,890 homeowners have redefaulted

out of HAMP.

For similar reasons, to address the alarming rate of redefaults, SIGTARP made

the following recommendations, which remain unimplemented:

  • As a result of the findings of Treasury’s research and analysis into the causes

of HAMP redefaults, and characteristics of redefaults, Treasury should modify

aspects of HAMP and the other TARP housing programs in ways to reduce the

number of redefaults.

  • Treasury should require servicers to develop and use an “early warning system”

to identify and reach out to homeowners that may be at risk of redefaulting

on a HAMP mortgage modification, including providing or recommending

counseling and other assistance and directing them to other TARP housing

  • In the letter Treasury already requires servicers to send to homeowners who

have redefaulted on a HAMP modification about possible options to foreclosure,

Treasury should require the servicers to include other available alternative

assistance options under TARP such as the Hardest Hit Fund and HAMP Tier\2, so that homeowners can move forward with other alternatives, if appropriate,

in a timely and fully informed manner. To the extent that a servicer does not

follow Treasury’s rules in this area, Treasury should permanently withhold

incentives from that servicer.

  • Treasury should increase the amount of the annual incentive payment paid to

each homeowner who remains in HAMP. Treasury should require the mortgage

servicer to apply the annual incentive payment earned by the homeowner to

reduce the amount of money that the homeowner must pay to the servicer

for the next month’s mortgage payment (or monthly payments if the incentive

exceeds the monthly mortgage payment), rather than to reduce the outstanding

principal balance of the mortgage.

SIGTARP looks forward to continuing its work with Treasury on implementing

SIGTARP’s recommendations, especially these crucial recommendations

concerning TARP’s housing programs, to ensure homeowners obtain the affordable

and sustainable relief Treasury intended.

Ninth Circuit Issues Common Sense Decision on Applicability of Pleading Tender in Truth in Lending Rescission Case

Merritt v. Countrywide Financial Corp., 09-17678 (9th Cir. July 16, 2014).

     “Automatically to require tender in the pleadings before any colorable defense has been presented would encourage creditors to refuse to honor indisputably valid rescission requests, because doing so would allow the security interest to remain in place absent tender,” Judge Marsha Berzon wrote for majority. “The result would be to allow creditors to vary the statutory sequence simply through intransigence.”
Berzon added that “plaintiffs can state a claim for rescission under TILA without pleading that they have tendered, or that they have the ability to tender, the value of their loan.”
“Only at the summary judgment stage may a court order the statutory sequence altered and require tender before rescission,” she wrote, “and then only on a ‘case-by-case basis,’ once the creditor has established a potentially viable defense.”
Reviving the Merritts’ claims under the Real Estate Settlement Practices Act, which “prohibits kickbacks and unearned fees” in such transactions, the panel found that the one-year statute of limitations could be postponed under certain circumstances.


This is great for Truth in Lending rescission cases, because it limits Yamamoto’s applicability, which the district courts were expanding.

Also, for just the common law “tender rule,” this same reasoning should apply because as we have argued, a borrower should not have to tender anything at the pleading stage.  You shouldn’t have to tender an entire loan just to argue that someone has recorded false or fraudulent documents against your property, or that someone has fraudulently tried to foreclose non-judicially.  Discovery should happen before determining whether tender is even appropriate, or how much, or to whom.  Tender was supposed to apply to crafting a remedy, not to bar pleading a case.  As the Ninth Circuit put it in Merritt,

In addition, in many cases, it will be impossible for the
parties or the court to know at the outset whether a borrower
asserting her TILA rescission rights will ultimately be able to
return the loan proceeds as required by the statute. That
ability may depend upon the merits of her TILA rescission
claim or on other claims related to the same loan transaction.
See, e.g., Prince v. U.S. Bank Nat’l Ass’n, 2009 WL 2998141,
at *5 (S.D. Ala. Sept. 14, 2009) (denying creditor’s motion to
dismiss as based on “mere speculation” that plaintiffs would
be unable to tender, and indicating that court would address
the proper sequences for implementing the rescission, if
necessary, only after resolving the rescission claim on the
merits). For instance, if a TILA rescission claim is
meritorious and the creditor relinquishes its security interest
in the property upon notice of rescission as required by the
default § 1635(b) sequence, the obligor may then be able to
refinance or sell the property and thereby repay the original
lender. Cf. Burrows v. Orchid Island TRS, LLC, 2008 WL
744735, at *6 (C.D. Cal. Mar. 18, 2008) (declining to require
pleading of tender where the court inferred that borrower
would be able to tender by selling or refinancing the property
if rescission was found to be appropriate); Williams v. Saxon
Mortg. Co., 2008 WL 45739, at *6 n.10 (S.D. Ala. Jan. 2,
2008) (declining to condition rescission on tender as was
done in Yamamoto, because it was not clear that borrower
would not be able to refinance the loan). Or her complaint
may allege damages claims arising from the same loan
transaction, the proceeds of which, if successful, could then
be used to satisfy her TILA tender obligation. See Shepard,
supra, at 205 & n.200, 210.

Colorado Attorney General Goes After Foreclosure Mill Law Firms Aronowitz and the Castle Law Group

$13 Million Settlement with Aronowitz & Mecklenburg Secured
DENVER — Colorado Attorney General John Suthers today announced the filing of civil law enforcement actions against the two largest foreclosure law firms in Colorado. In separate filings, the Attorney General’s Consumer Protection Section charged The Castle Law Group, its principals and affiliated foreclosure-related businesses, as well as Aronowitz & Mecklenburg, its principals and affiliated foreclosure-related businesses with violating the Colorado Consumer Protection Act, the Colorado Antitrust Act, and the Colorado Fair Debt Collection Practices Act. The Attorney General filed a simultaneous proposed Final Consent Judgment settling the case against the Aronowitz defendants.
“These lawsuits come at the end of a lengthy and exhaustive investigation into allegedly fraudulent billing practices by these firms that inflated foreclosure costs,” said Attorney General John Suthers. “These inflated costs were passed on to homeowners trying to save their homes from foreclosure, successful bidders for properties at foreclosure sales, and to investors and taxpayers. The facts uncovered by our investigation are very disturbing and, frankly, reflect poorly on the legal profession.”

From the Complaint,

This action is the result of the State’s extensive two-year civil law enforcement investigation of foreclosure law firms, including Aronowitz & Mecklenburg (“Aronowitz” or “the law firm”), that have performed the vast majority of the roughly 275,000 residential foreclosures in Colorado since 2006. This investigation revealed that these law firms, including Aronowitz, unlawfully exploit the foreclosure process by misrepresenting and inflating the costs they incur for foreclosure-related services to fraudulently obtain tens of millions of dollars in unlawful proceeds. Although the law firms agreed to perform these routine foreclosures for a flat attorney fee, they viewed this fee as insufficient and devised a scheme to generate additional millions by inflating foreclosure costs. Homeowners, purchasers, investors, and taxpayers paid for and continue to pay for these fraudulent charges.

2. Defendants systematically and intentionally misrepresent, inflate, and charge unreasonable, unauthorized, unlawful, and deceptive costs for posting foreclosure notices, obtaining title products, preparing documents, and providing other foreclosure-related services. They do this primarily through affiliated vendors, which create invoices for foreclosure services at costs grossly inflated above the actual costs and above what unaffiliated vendors charge for the same services.

3. Defendants get away with this extensive fraud by taking advantage of the inherent lack of oversight in the foreclosure process. The mortgage servicers that hire the law firm on behalf of the loan’s investor rely upon the law firm to perform all the legal work in the foreclosure for an agreed-upon flat attorney fee (the “maximum allowable fee”) and to pass through only its actual, necessary, and reasonable costs. Servicers do not conduct market analyses of these foreclosure costs; rather, they rely on the law firm to comply with the law and investor guidelines by charging costs that are actual, reasonable, and the market rate.

4. Defendants also get away with charging excessive, unauthorized, and unlawful costs because no homeowner, purchaser, or taxpayer can challenge the law firm’s claimed costs. Nor may the public trustees, which administer the foreclosure process, or the courts, which authorize the foreclosure sale, challenge these costs. Thus, a homeowner seeking to save his home from foreclosure or a person purchasing a property at auction must pay whatever costs the law firm claims to have incurred in performing the foreclosure. If the property returns to the lender, the mortgage servicer assesses these costs to the investor or insurer, which are often borne by taxpayers.

5. The law firm abuses this system, which it knows is devoid of administrative or judicial oversight, to charge whatever costs it can get away with in order to generate significant revenue beyond the maximum allowable fee.

6. For example, in early 2009 when the Colorado legislature began considering a bill to allow for a brief foreclosure deferment that would require posting a notice similar to an eviction notice, Stacey Aronowitz began working with Caren Castle of The Castle Law Group (“Castle”), Aronowitz’s largest competitor, on what they could get away with charging. Stacey Aronowitz emailed a foreclosure lawyer in another state that also required a foreclosure posting and asked: “I am curious how much you get away with charging . . . .” She later emailed Caren Castle: “I just wanted our offices to try and get on the same page on what we are charging for all of this.” They agreed that Caren Castle would try to seek approval from Fannie Mae, the dominant investor in the foreclosure industry, to charge $125 for this new posting, not the $25 charged for similar eviction postings.

7. Accordingly, these two competitors, who handle 75 percent of Colorado foreclosure filings, coordinated to set the minimum price for posting at $125—an amount unrelated to the actual cost for such postings or the market rate charged by unaffiliated vendors. Once the bill requiring the foreclosure posting passed, Aronowitz and Castle secured financial interests in posting companies and claimed fraudulent and inflated costs of at least $125 per posting. This amount multiplied by tens of thousands of foreclosures resulted in a multimillion-dollar windfall to the posting companies and, directly or indirectly, to the law firm, Stacey Aronowitz, Robert Aronowitz and Joel Mecklenburg (collectively “Aronowitz Defendants”) and to Castle.

8. Operating with no checks and unrestrained by market principles by selling foreclosure services to themselves, the Aronowitz Defendants charge around $350 to $750 in unlawful costs per foreclosure by making false, misleading, and deceptive statements of costs to homeowners, servicers, investors, and the public on reinstatements, cures, bids, and invoices, as follows:
● $125 to $150 for each of the two required foreclosure postings for a total of $250 to $275 per foreclosure when the market rate for each posting is $25;
● $250 to $275 for title search reports when the market rate is $100;
● $400 to $500 in “cancellation fees” for foreclosure title commitments ordered by the law firm during the foreclosure;
● $100 for a one-page form document that can be completed in secondsand is already compensated in the allowable foreclosure fee;
● $35 for a tax search/tax certification when the actual cost is $10 or less;
● $25 for a bankruptcy search that costs $3 or less; and
● $10 to $25 for a military status search that is free.

9. Defendants’ multimillion-dollar unjust enrichment came at a tremendous expense to the public. Not only does it harm desperate homeowners facing foreclosure and persons buying properties at auction, it reverberates to the public at large, as servicers hiring the law firm pass along these costs to taxpayer-funded investors or insurers. As Fannie Mae informed Aronowitz and other Colorado foreclosure law firms during a 2010 training, its credit losses are taxpayer-funded and every effort should be taken to reduce foreclosure costs because every dollar reduction in costs is significant when multiplied by a large volume of loans.

10. These inflated foreclosure costs also negatively impact housing and loan costs outside the foreclosure industry. Moreover, the law firm’s use of affiliated businesses charging inflated costs has adversely affected competition from businesses that could provide foreclosure services at a much lower market rate.

11. The increased cost of foreclosures and negative impact on competition wrought by Aronowitz’s and Castle’s use of affiliated vendors charging above the market rate for foreclosure services was recently highlighted when Fannie Mae suspended Aronowitz and Castle from handling any Fannie Mae foreclosures. Fannie Mae began referring its files to new law firms using unaffiliated vendors, which provide postings at $25, not $125, and title searches at $85 to $105, not $275. This development has already significantly reduced the costs per foreclosure. These unaffiliated vendors—which were effectively cut out of the foreclosure market by Aronowitz’s and Castle’s affiliated vendors—have since substantially increased their volume of work by providing services to new law firms at actual market prices.

12. Defendants’ conduct violates the Colorado Consumer Protection Act, the Colorado Antitrust Act of 1992, and the Colorado Fair Debt Collection Practices Act and harms homeowners and the public.

CitiGroup Fine Does Not Bring Enough Homeowner Relief

Truthout writes about the Citigroup civil fine announced yesterday:

Of the $7 billion total settlement, $4 billion will be in the form of a civil monetary payment to the Department of Justice, $500 million will go to state attorney’s general and the Federal Deposit Insurance Corporation, and an additional $2.5 billion will go towards “consumer relief.”

But make no mistake about it. This agreement is another win for the big banks.

Under the agreement, Citigroup will most likely get a $500 million tax write-off. And in pre-market trading on Monday, Citigroup stocks rose by nearly 4 percent, despite the $7 billion agreement.

This is nothing more than a slap on the wrist for Citigroup; basically a cost of doing business.

And as for the mere $2.5 billion in consumer relief, while it will be going towards loan modifications, principal reduction and refinancing for distressed homeowners, it’s nowhere near enough. And there are no guarantees it will make its way into the hands of the people Citigroup victimized, either.

If the Department of Justice was serious about holding Citigroup accountable for its actions, and helping the American people and economy recover from the Great Recession, then it would be taking a heck of a lot more than $7 billion, and giving that money directly to the American people.

It would be helping out American homeowners, instead of continuing to protect the big banks.

After all, it’s consumers buying things like houses who drive demand and grow the economy. Not the big banks on Wall Street.

Directly helping out American homeowners after a crisis isn’t some sort of radical idea or new thing we have to look at Sweden or Iceland to figure out, either.

We’ve done this sort of thing before, right here in the United States, and it worked very well.

Back in 1933, in the wake of the Great Depression, FDR signed into law the Home Owners’ Loan Act of 1933, which created the Home Owners’ Loan Corporation(HOLC).

The HOLC’s main goal was to help refinance home mortgages that were in default or at risk of foreclosure because of the 1929 stock market crash and the previous collapse of the housing industry.

It did that by buying up old mortgages from the banks using government bonds – borrowed money.

In a statement released after the act was signed into law, FDR said that, “In signing the ‘Home Owners Loan Act of 1933,’ I feel that we have taken another important step toward the ending of deflation which was rapidly depriving many millions of farm and home owners from the title and equity to their property.”

By the mid-1930’s, the HOLC had helped to refinance nearly 20 percent of urban homes in America.

And by 1936, the final year that the HOLC was buying mortgages, it had helped to provide Americans with over one million new mortgages, and had lent out nearly $750 billion in today’s dollars.

That’s right; $750 billion in today’s dollars. That makes the $2.5 billion from the Citigroup agreement going towards consumer relief seem like nothing.

To this day, the HOLC is credited with relieving the financial burdens of millions of Americans, and helping to right the American economy.

If we’re serious about rebuilding the American economy, and helping out the millions of Americans who still struggle to keep a roof over their heads, then we need to be doing a lot more than just forcing one bank to handle $2.5 billion in consumer relief and trusting the bank to distribute it responsibly.

We need to stop caring so much about the well-being of Wall Street, and start caring about the American people and economy.

No American should have to go to bed tonight worrying if they’re going to become homeless tomorrow.