What Homeowners Should Know About the National Mortgage Settlement for Borrowers in Bankruptcy and Case Trustees

19 Thursday Jul 2018

Posted by BNG in Bankruptcy, Banks and Lenders, Foreclosure Crisis, Foreclosure Defense, Fraud, Judicial States, Mortgage fraud, Mortgage Laws, Mortgage Servicing, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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Bank of America, Bankrupcty, Bankruptcy, bankruptcy court, Bankruptcy Trustee, Borrower, Borrowers in Bankruptcy, Case Trustees, Citi, Foreclosure, foreclosure defense, homeowners, J.P. Morgan Chase, Loan servicing, Mortgage loan, Mortgage servicer, National Mortgage Settlement, Pro se legal representation in the United States, Trustee, United States, Wells Fargo

The National Mortgage Settlement (the “Settlement”) is an agreement among the federal government, 49 states, and the five largest mortgage servicers and their affiliates (the “Banks”).

The Banks are:
Ally Financial, Inc. (formerly GMAC)
Bank of America Corporation
Citigroup, Inc.
J.P. Morgan Chase & Co.
Wells Fargo & Company

The Settlement provides benefits to borrowers, including borrowers in bankruptcy, whose residential mortgage loans are serviced by the Banks.

Information concerning the Settlement and its impact on borrowers in bankruptcy can be found at a dedicated page on the United States Trustee Program’s website at http://www.justice.gov/ust/eo/public_affairs/consumer_info/nms

In addition, the website http://www.nationalmortgagesettlement.com provides resources about the Settlement, including a copy of the Settlement, an executive summary of the Settlement, a fact sheet, and FAQs. The FAQs on that website discuss general issues, including:

• What Bank conduct is covered by the Settlement?

• What loans are covered by the Settlement?

• What are the financial provisions of the Settlement?

• How will the Settlement be enforced?

Finally, the Settlement requires the appointment of an independent monitor to oversee the Banks’ compliance with the Settlement. The website for the monitor is: www.mortgageoversight.com

Question 1: What do these FAQs cover?

The United States Trustee Program, the component of the Department of Justice responsible for overseeing the administration of bankruptcy cases and private trustees, has prepared these FAQs primarily for borrowers in bankruptcy or borrowers who are considering filing bankruptcy, including those who have lost their homes in foreclosure. These FAQs also address questions that trustees who administer bankruptcy cases may have.

These FAQs are provided as a basic resource and should not be considered legal advice. The United States Trustee Program is prohibited from providing legal advice. If you have any questions, you should consult an attorney.

Question 2: What bankruptcy issues did the Settlement address?

The Settlement addresses misconduct by the Banks in bankruptcy cases, including:

• Inflated or inaccurate claims.

Some of the Banks filed inflated or inaccurate documents in bankruptcy courts. When a borrower files for bankruptcy relief, the Bank may file a proof of claim or motion for relief from the automatic stay. These documents tell a bankruptcy court how much the Bank claims the borrower owes the Bank. The proof of claim also governs what a borrower in bankruptcy must pay through a chapter 13 repayment plan, and the motion for relief can determine whether the Bank may seek to commence to foreclose upon a home even if the borrower is in bankruptcy.

The accuracy of these documents is crucial. A number of parties, including the borrower in bankruptcy, the bankruptcy court, the trustee administering the case, the United States Trustee, and other creditors, rely on these documents.

When a Bank inflates or misstates what a borrower in bankruptcy owes in these documents, the consequences can be severe. For example, the Bank may be paid too much and other creditors may not receive amounts they are owed. At worst, the borrower in bankruptcy is unable to propose a repayment plan that can be approved and the bankruptcy case is dismissed, or the Bank improperly obtains relief from the automatic stay and is permitted to foreclose on the borrower’s home. As a result, the borrower in bankruptcy loses the ability to keep the home and obtain a fresh start in bankruptcy.

• Improper accounting of mortgage payments made by borrowers in bankruptcy.

Some of the Banks misapplied payments made by borrowers in bankruptcy. When a Bank does this, it appears on the Bank’s books as if the borrower has failed to make regular monthly payments and the Bank can file a motion seeking relief from the automatic stay to foreclose upon the borrower’s home. This misapplication of payments also results in the Bank improperly asserting that the borrower is behind on mortgage payments and can lead to the Bank imposing loan default fees and other charges.

• Adding improper fees and charges to the mortgage accounts of borrowers in bankruptcy.

Some of the Banks charged borrowers in bankruptcy for services not warranted, or in amounts not allowed. For example, some of the Banks sought to recover escrow payments twice, and conducted unnecessary or excessive property inspections and appraisals.

• Charging “hidden fees” to the mortgage accounts of borrowers in bankruptcy.

Some of the Banks also imposed “hidden fees” – fees that are assessed during the bankruptcy case but are not disclosed until after a borrower in bankruptcy receives a discharge. This can result in borrowers believing they are current on their mortgages, only to have a Bank claim the borrowers owe additional amounts. This deprives borrowers in bankruptcy of the “fresh start” promised by the bankruptcy discharge. These hidden fees also often violate bankruptcy court orders finding that borrowers are current on their mortgages.

• Seeking relief from stay to foreclose while borrowers in bankruptcy have pending applications for loan modifications.

Some of the Banks separated their bankruptcy operations from other aspects of their mortgage servicing business, so they did not have a clear picture of the status of a borrower in bankruptcy’s mortgage.

For example, the Banks sometimes provided borrowers in bankruptcy the opportunity to modify the terms of their home loans. Modification has benefits for both the Bank, which continues to receive payments, and the borrower, who receives a more manageable monthly payment.

However, while applications for loan modifications were being processed by one group of the Bank, its bankruptcy operations might move forward with requests for relief from the automatic stay so the Bank could commence foreclosure.

Question 3: Will the Settlement impact borrowers in bankruptcy?

Yes. The Settlement requires the Banks to collectively dedicate approximately $20 billion toward various forms of financial relief for borrowers including principal reduction, forbearance of principal for unemployed borrowers, short sales and transitional assistance, and specific benefits for service members.

The Banks must also make payments to state and federal authorities exceeding $5 billion. Of this amount, $1.5 billion has been set aside to establish a “Borrower Payment Fund” administered by Rust Consulting LLC (the “Settlement Administrator”).

Much of this relief is available to borrowers in bankruptcy. A borrower should contact the appropriate Bank (see question 4) to determine eligibility for relief. A borrower should contact the Settlement Administrator regarding the Borrower Payment Fund (see question 5).

Additionally, the Banks must implement extensive new mortgage servicing standards, including provisions specific to borrowers in bankruptcy. These standards address what occurs when borrowers fall behind on their mortgage payments, including when borrowers file for bankruptcy relief. As explained in these FAQs (see questions 7 through 11), the servicing standards require, among other things:

• A single point of contact at each Bank for borrowers in bankruptcy, who want information or assistance when they fall behind on their mortgage payments;

• New processes to ensure that the Banks provide accurate information about the amount that borrowers in bankruptcy owe on their mortgages;

• Better dispute resolution processes;

• Clear itemization of the principal, interest, fees, expenses and other charges incurred prior to bankruptcy that the Banks claim in bankruptcy cases;

• Prompt posting of payments and proper designation of pre-and post- petition payments and charges;

• Timely disclosure of fees, expenses, and charges incurred after a ` borrower files for chapter 13 bankruptcy.

Question 4: How will borrowers in bankruptcy know if they are eligible for financial assistance under the Settlement?

The Banks may directly contact borrowers, including borrowers in bankruptcy. However, borrowers should not wait to be contacted. To determine eligibility, a borrower or their attorney should contact the appropriate Bank:

Ally/GMAC: 800-766-4622

Bank of America: 877-488-7814

(Available Monday – Friday, 7:00 a.m. – 9:00 p.m. (CT),
and Saturdays, 8:00 a.m. – 5:00 p.m. CT))

Citi: 866-272-4749

J.P. Morgan Chase: 866-372-6901

Wells Fargo: 800-288-3212
(Available Monday – Friday, 7:00 a.m. – 7:00 p.m. (CT))

A borrower should not use these phone numbers for questions concerning payments from the Borrower Payment Fund. See question 5 for information concerning these payments.

Question 5: Who can a borrower contact for information concerning payments from the Borrower Payment Fund?

The Settlement required the Banks to pay $1.5 billion to a “Borrower Payment Fund” that will be used to make payments to borrowers who lost their homes through foreclosure between and including January 1, 2008 and December 31, 2011. The Settlement Administrator has mailed Notice Letters and Claim Forms to eligible borrowers.

If you believe that you are eligible for relief and have not received a Notice Letter or Claim Form or have other questions concerning the Borrower Payment Fund, please contact the Settlement Administrator at 866-430-8358, Monday through Friday, 7:00 a.m. – 7:00 p.m. (CT).

Question 6: What if a borrower in bankruptcy already has a claim against a Bank?

The Settlement includes a release of liability by the federal government and the participating states for certain conduct by the Banks that occurred prior to the Settlement. The Settlement does not release claims a borrower, including a borrower in bankruptcy, may have under state or federal law, and a borrower does not need to choose between accepting relief under the Settlement and pursuing those claims.

Question 7: Can borrowers in bankruptcy participate in the Settlement and receive financial assistance from other sources?

Yes. Borrowers, including borrowers in bankruptcy, may participate in the programs offered under the Settlement and other programs. For example, borrowers may be eligible for a separate restitution process administered by the federal banking regulators, including the Office of the Comptroller of the Currency (the “OCC”). For more information about the federal banking regulator claims process, please visit www.independentforeclosurereview.com or call 1-888-952-9105.

Question 8: Is there someone at the Banks whom borrowers in bankruptcy can contact with questions concerning their mortgage?

Yes. Each Bank has a single point of contact for borrowers (a “SPOC”), including borrowers in bankruptcy, who want information or assistance when they fall behind on their mortgage payments. The SPOCs for borrowers in bankruptcy must be knowledgeable about bankruptcy issues. Also, the Banks must have adequate staff to handle the calls.

Question 9: Do the Banks have special contacts that chapter 13 trustees can utilize to address trustee inquiries?

Yes. The Settlement requires that each Bank establish a toll-free hotline staffed by employees trained in bankruptcy to respond to inquiries from chapter 13 trustees.

Trustees should have received information regarding these hotlines. Any chapter 13 trustee who has not received this information should contact their local United States Trustee office.

Question 10: How does the Settlement address the Banks’ filings in bankruptcy courts going forward?

The Settlement imposes new standards on the Banks to ensure the accuracy of information they provide to bankruptcy courts. These standards are designed to ensure that the Banks provide accurate information about the amount that borrowers in bankruptcy owe on their mortgages.

Moreover, under the new servicing standards, the Banks must implement better dispute resolution processes. If a Bank files inaccurate or misleading documents in a bankruptcy case, a borrower can use these new procedures and make a complaint with the Bank.

In addition, with respect to proofs of claim and certain affidavits attached to documents filed in bankruptcy courts, the Banks must correct any significant inaccuracies promptly and also provide notice of the correction to the affected borrower or counsel to the borrower.

Question 11: What kind of information must the Banks provide concerning a mortgage when a borrower files for bankruptcy?

For a borrower in a chapter 13 (repayment) case, if a Bank files a proof of claim, the Bank must include an accurate and clear statement of exactly what the Bank claims the borrower owes. That statement must itemize the principal, interest, fees, expenses, and other charges that the Bank claims is owed as of the filing of the bankruptcy case.

Question 12: How does the Settlement affect how the Banks apply mortgage payments made by borrowers or a trustee in bankruptcy?

The Banks must promptly post payments received from a borrower or trustee while a borrower is in bankruptcy and accurately designate payments between any arrearage owed before the bankruptcy filing and what is owed for regular mortgage payments after the filing. The Banks must also reconcile accounts, including funds held in suspense accounts, at the end of each bankruptcy case and update their records so they are consistent with the account reconciliation.

Question 13: How does the Settlement affect what the Banks charge after a borrower files for bankruptcy?

The Banks must timely disclose fees, expenses, and charges incurred after a borrower files a chapter 13 bankruptcy case. A Bank waives fees, expenses, and charges of which the Bank has not given timely notice to the Borrower. The Banks must also timely give notice to a borrower of any changes in payments the borrower will have to make due to, for example, interest rate adjustments or changes in the escrow amount.

Question 14: Should a trustee administering the case of a borrower in bankruptcy seek to recover funds received by the borrower under the Settlement?

Eligible borrowers in bankruptcy may receive payments from the Banks as a part of the Settlement. A trustee should consider all relevant circumstances when deciding whether to seek turnover of the payments in a particular case. Factors to consider include:

• The payment amount and any interest of a non-debtor spouse or other person in the payment;

• The cost of recovering and administering the payment, including litigation with a borrower in bankruptcy who may seek a judicial determination regarding whether the funds are subject to administration;

• The extent to which recovering the payment will enable creditors to receive a meaningful distribution; and

• The applicability of state and federal exemptions.

The United States Trustee Program will not seek to compel a trustee to recover payments that the trustee, in the exercise of discretion, decides not to recover.

Question 15: How does the Settlement affect the trustees’ review of the Banks’ proofs of claim?

Generally, the Settlement will not alter a trustee’s review of claims filed by the Banks. If a trustee concludes, based on a review of a Bank’s bankruptcy filings, that a Bank violated the Settlement, the trustee, usually will contact the United States Trustee’s office in the jurisdiction in which the case was filed.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

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If you find yourself in an unfortunate situation of losing or about to lose your home to wrongful fraudulent foreclosure, and need a complete package that will show you step-by-step litigation solutions helping you challenge these fraudsters and ultimately saving your home from foreclosure either through loan modification or “Pro Se” litigation visit: https://fightforeclosure.net/foreclosure-defense-package/

Kentucky Federal Case Against MERS to Move Forward

12 Thursday Dec 2013

Posted by BNG in Federal Court, Foreclosure Crisis, Fraud, Judicial States, MERS, Mortgage Laws, Non-Judicial States, State Court, Your Legal Rights

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Attorney general, Conway, Freddie Mac, Jack Conway, Kentucky, MERS, Mortgage Electronic Registration System, Wells Fargo

Attorney General Conway’s Federal Case Against MERS to Move Forward

Attorney General Jack Conway today announced that a Franklin Circuit Court judge has ruled that the Office of the Attorney General properly alleged violations of Kentucky’s Consumer Protection Act against MERSCORP Holdings, Inc., and its wholly-owned subsidiary Mortgage Electronic Registration Systems, Inc. (MERS).

“I appreciate the court’s careful consideration on this matter, and I am pleased with the result,” General Conway said. “This ruling paves the way to allow my office to hold MERS accountable for its deceptive conduct, and we look forward to continuing our fight for Kentucky consumers.”

MERS was created in 1995 to enable the mortgage industry to avoid paying state recording fees, to facilitate the rapid sale and securitization of mortgages, and to shorten the time it takes to pursue foreclosure actions. Its corporate shareholders include, among others, Bank of America, Wells Fargo, Fannie Mae, Freddie Mac, and the Mortgage Bankers Association. Currently, more than 6,500 MERS members pay for access to the private system. More than 70 million mortgages have been registered on the system.

In January, as a result of General Conway’s investigation of mortgage foreclosure issues in Kentucky, the Attorney General’s office filed a lawsuit in Franklin Circuit Court alleging that MERS had violated Kentucky’s Consumer Protection Act by committing unfair or deceptive trade practices. The lawsuit alleged that since MERS’ creation in 1995, members have avoided paying more than $2 billion in recording fees nationwide. Hundreds of thousands of Kentucky loans are registered in the MERS system.

Additionally, the lawsuit alleged that MERS violated Kentucky’s statute requiring mandatory recording of mortgage assignments, and that MERS had generally committed fraud and unjustly enriched itself at the expense of consumers and the Commonwealth of Kentucky. MERS had moved to dismiss all of the claims on various grounds.

On Dec. 3, the court determined that Attorney General Conway had properly alleged violations of the Consumer Protection Act, as MERS engages in trade or commerce, and that the Attorney General had sufficiently alleged unfair, misleading, or deceptive practices. The court also found that the Attorney General had sufficiently alleged its claims that MERS had committed fraud and had unjustly enriched itself at the expense of the public. The only claim dismissed by the court was the Commonwealth’s allegation that MERS violated the statute requiring recording of mortgage assignments. The court did not determine whether or not MERS had violated the recording statute; the court simply found that the recording statute itself lacks an enforcement mechanism. In all, eight of the nine causes of action brought against MERS by General Conway survived MERS’ motion to dismiss.

Other states have filed similar lawsuits against MERS, including Massachusetts, Delaware and New York. The Kentucky Office of the Attorney General is the first state Attorney General’s office to move past the motion to dismiss stage against MERS.

The Franklin Circuit Court found that the Attorney General had sufficiently stated legal causes of action. It has not yet taken any evidence or ruled on whether MERS committed the alleged violations.

MORTGAGE FORECLOSURE SETTLEMENT

In addition to the MERS lawsuit, General Conway joined 48 other state Attorneys General in negotiating the historic $25 billion national mortgage foreclosure settlement. The Attorneys General uncovered that the nation’s five largest banks had been committing fraud during some foreclosures by filing “robo-signed” documents with the courts.

Kentucky’s share of the settlement totals more than $63.7 million. Thirty-eight million dollars is being allocated by the settlement administrator to consumers who qualify for refinancing, loan write downs, debt restructuring and/or cash payments of up to $2,000. To date, the banks report providing relief to 1,833 Kentucky homeowners. The average borrower received an average of $34,771 in assistance.

Kentucky also received $19.2 million in hard dollars from the banks. The money went to agencies that create affordable housing, provide relief or legal assistance to homeowners facing foreclosure, redevelop foreclosed properties and reduce blight created by vacant properties.

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, visit: http://www.fightforeclosure.net

MORTGAGE FORECLOSURE SETTLEMENT

The Franklin Circuit Court found that the Attorney General had sufficiently stated legal causes of action. It has not yet taken any evidence or ruled on whether MERS committed the alleged violations. – See more at: http://stopforeclosurefraud.com/2013/12/11/franklin-circuit-judge-allows-attorney-general-conways-case-against-mers-to-move-forward/comment-page-1/#comment-109158

– See more at: http://stopforeclosurefraud.com/2013/12/11/franklin-circuit-judge-allows-attorney-general-conways-case-against-mers-to-move-forward/comment-page-1/#comment-109158

Why Homeowners Lose on Appeal – A Review of Wrongful Foreclosure Appeal Case

02 Monday Dec 2013

Posted by BNG in Appeal, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, MERS, Pleadings, Pro Se Litigation

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Arizona, Bank of America, Florida, MERS, Mortgage Electronic Registration System, New York, Washington, Wells Fargo

A CASE IN REVIEW (1)

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

No. 09-17364 D.C. No. 2:09-cv-00517-JAT

OLGA CERVANTES, an unmarried
woman; CARLOS ALMENDAREZ, a
married man; ARTURO MAXIMO, a
married man, individually and on
behalf of a class of similarly
situated individuals,
Plaintiffs-Appellants,
v.

OPINION
COUNTRYWIDE HOME LOANS, INC., a
New York corporation; MORTGAGE
ELECTRONIC REGISTRATION SYSTEMS,
INC., a subsidiary of MERSCORP,
INC., a Delaware corporation; ý MERSCORP, INC.; FEDERAL HOME
LOAN MORTGAGE CORPORATION, a
foreign corporation, AKA Freddie
Mac; FEDERAL NATIONAL
MORTGAGE ASSOCIATION, a foreign
corporation; GMAC MORTGAGE,
LLC, a Delaware corporation;
NATIONAL CITY MORTGAGE, a
foreign company and a division of
National City Bank, a foreign
company; J.P. MORGAN CHASE
BANK, N.A., a New York
corporation; CITIMORTGAGE, INC., a
New York corporation;

HSBC MORTGAGE CORPORATION,
U.S.A., a Delaware corporation;
AIG UNITED GUARANTY
CORPORATION, a foreign
corporation; WELLS FARGO BANK,
N.A., a California corporation,
DBA Wells Fargo Home Equity;
BANK OF AMERICA, N.A., a foreign
corporation; GE MONEY BANK, a
foreign company; PNC FINANCIAL
SERVICES GROUP, INC., a
Pennsylvania corporation; No. 09-17364
NATIONAL CITY CORPORATION, a D.C. No. subsidiary of PNC Financial Services Group; N 2:09-cv-00517-JAT ATIONAL CITY
BANK, a subsidiary of National OPINION
City Corporation; MERRILL LYNCH
& COMPANY, INC., a subsidiary of
Bank of America Corporation;
FIRST FRANKLIN FINANCIAL
CORPORATION, a subsidiary of
Merrill Lynch & Company, Inc.;
LASALLE BANK, N.A., a subsidiary
of Bank of America; TIFFANY &
BOSCO P.A., an Arizona
professional association,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Arizona
James A. Teilborg, District Judge, Presiding
Argued and Submitted
February 16, 2011—San Francisco, California
Filed September 7, 2011

Before: Richard C. Tallman, Johnnie B. Rawlinson,* and
Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Callahan

*Due to the death of the Honorable David R. Thompson, the Honorable
Johnnie B. Rawlinson, United States Circuit Judge for the Ninth Circuit,
has been drawn to replace him on this panel. Judge Rawlinson has read
the briefs, reviewed the record, and listened to the audio recording of oral
argument held on February 16, 2011.

COUNSEL
William A. Nebeker and Valerie R. Edwards, Koeller
Nebeker Carlson & Haluck, LLP, Phoenix, Arizona, and Robert
Hager and Treva Hearne, Hager & Hearne, Reno, Nevada,
for the appellants.
Timothy J. Thomason, Mariscal Weeks McIntyre & Friedlander,
P.A., Phoenix, Arizona, Thomas M. Hefferon, Goodwin
Procter, LLP, Washington, DC, Howard N. Cayne,
Arnold & Porter, LLP, Washington, DC, Stephen E. Hart,
Federal Housing Finance Agency, Washington, DC, Mark S.
Landman, Landman Corsini Ballaine & Ford P.C., New York,
New York, and Robert M. Brochin, Morgan, Lewis & Bockius,
LLP, Miami, Florida, for the appellees.

OPINION

CALLAHAN, Circuit Judge:
This is a putative class action challenging origination and
foreclosure procedures for home loans maintained within the
Mortgage Electronic Registration System (MERS). The plaintiffs
appeal from the dismissal of their First Amended Complaint
for failure to state a claim. In their complaint, the
plaintiffs allege conspiracies by their lenders and others to use
MERS to commit fraud. They also allege that their lenders
violated the Truth in Lending Act (TILA), 15 U.S.C. § 1601
et seq., and the Arizona Consumer Fraud Act, Ariz. Rev. Stat.
§ 44-1522, and committed the tort of intentional infliction of
emotional distress by targeting the plaintiffs for loans they
could not repay. The plaintiffs were denied leave to file their
proposed Second Amended Complaint, and to add a new
claim for wrongful foreclosure based upon the operation of
the MERS system.

On appeal, the plaintiffs stand by the sufficiency of some
of their claims, but primarily contend that they could cure any
pleading deficiencies with a newly amended complaint, which
would include a claim for wrongful foreclosure. We are
unpersuaded that the plaintiffs’ allegations are sufficient to
support their claims. Although the plaintiffs allege that
aspects of the MERS system are fraudulent, they cannot
establish that they were misinformed about the MERS system,
relied on any misinformation in entering into their home
loans, or were injured as a result of the misinformation. If
anything, the allegations suggest that the plaintiffs were
informed of the exact aspects of the MERS system that they
now complain about when they agreed to enter into their
home loans. Further, although the plaintiffs contend that they
can state a claim for wrongful foreclosure, Arizona state law
does not currently recognize this cause of action, and their
claim is, in any case, without a basis. The plaintiffs’ claim
depends upon the conclusion that any home loan within the MERS system is unenforceable through a foreclosure sale, but
that conclusion is unsupported by the facts and law on which
they rely. Because the plaintiffs fail to establish a plausible
basis for relief on these and their other claims raised on
appeal, we affirm the district court’s dismissal of the complaint
without leave to amend.

I.
The focus of this lawsuit—and many others around the
country—is the MERS system.

1. How MERS works
MERS is a private electronic database, operated by MERSCORP,
Inc., that tracks the transfer of the “beneficial interest”
in home loans, as well as any changes in loan servicers. After
a borrower takes out a home loan, the original lender may sell
all or a portion of its beneficial interest in the loan and change
loan servicers. The owner of the beneficial interest is entitled
to repayment of the loan. For simplicity, we will refer to the
owner of the beneficial interest as the “lender.” The servicer
of the loan collects payments from the borrower, sends payments
to the lender, and handles administrative aspects of the
loan. Many of the companies that participate in the mortgage
industry—by originating loans, buying or investing in the
beneficial interest in loans, or servicing loans—are members
of MERS and pay a fee to use the tracking system. See Jackson
v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d 487,
490 (Minn. 2009).

When a borrower takes out a home loan, the borrower executes
two documents in favor of the lender: (1) a promissory
note to repay the loan, and (2) a deed of trust, or mortgage,
that transfers legal title in the property as collateral to secure
the loan in the event of default. State laws require the lender
to record the deed in the county in which the property is located. Any subsequent sale or assignment of the deed must
be recorded in the county records, as well.

This recording process became cumbersome to the mortgage
industry, particularly as the trading of loans increased.
See Robert E. Dordan, Mortgage Electronic Registration Systems
(MERS), Its Recent Legal Battles, and the Chance for a
Peaceful Existence, 12 Loy. J. Pub. Int. L. 177, 178 (2010).
It has become common for original lenders to bundle the beneficial
interest in individual loans and sell them to investors
as mortgage-backed securities, which may themselves be
traded. See id. at 180; Jackson, 770 N.W.2d at 490. MERS
was designed to avoid the need to record multiple transfers of
the deed by serving as the nominal record holder of the deed
on behalf of the original lender and any subsequent lender.
Jackson, 770 N.W.2d at 490.

At the origination of the loan, MERS is designated in the
deed of trust as a nominee for the lender and the lender’s
“successors and assigns,” and as the deed’s “beneficiary”
which holds legal title to the security interest conveyed. If the
lender sells or assigns the beneficial interest in the loan to
another MERS member, the change is recorded only in the
MERS database, not in county records, because MERS continues
to hold the deed on the new lender’s behalf. If the beneficial
interest in the loan is sold to a non-MERS member, the
transfer of the deed from MERS to the new lender is recorded
in county records and the loan is no longer tracked in the
MERS system.
In the event of a default on the loan, the lender may initiate
foreclosure in its own name, or may appoint a trustee to initiate
foreclosure on the lender’s behalf. However, to have the
legal power to foreclose, the trustee must have authority to act
as the holder, or agent of the holder, of both the deed and the
note together. See Landmark Nat’l Bank v. Kesler, 216 P.3d
158, 167 (Kan. 2009). The deed and note must be held
together because the holder of the note is only entitled to repayment, and does not have the right under the deed to use
the property as a means of satisfying repayment. Id. Conversely,
the holder of the deed alone does not have a right to
repayment and, thus, does not have an interest in foreclosing
on the property to satisfy repayment. Id. One of the main
premises of the plaintiffs’ lawsuit here is that the MERS system
impermissibly “splits” the note and deed by facilitating
the transfer of the beneficial interest in the loan among lenders
while maintaining MERS as the nominal holder of the
deed.
The plaintiffs’ lawsuit is also premised on the fact that
MERS does not have a financial interest in the loans, which,
according to the plaintiffs, renders MERS’s status as a beneficiary
a sham. MERS is not involved in originating the loan,
does not have any right to payments on the loan, and does not
service the loan. MERS relies on its members to have someone
on their own staff become a MERS officer with the
authority to sign documents on behalf of MERS. See Dordan,
12 Loy. J. Pub. Int. L. at 182; Jackson, 770 N.W.2d at 491.
As a result, most of the actions taken in MERS’s own name
are carried out by staff at the companies that sell and buy the
beneficial interest in the loans. Id.

2. The named plaintiffs
The three named plaintiffs in this case, Olga Cervantes,
Carlos Almendarez, and Arturo Maximo, obtained home
loans or refinanced existing loans in 2006. All three signed
promissory notes with their lenders—Cervantes with Countrywide
Home Loans, and Almendarez and Maximo with First
Franklin. Each executed a deed of trust in favor of his or her
lender, naming MERS as the “beneficiary” and as the “nominee”
for the lender and lender’s “successors and assigns.”
All three plaintiffs are Hispanic, and Almendarez and Maximo
do not speak or read English. Almendarez and Maximo
negotiated the mortgage loans with their lenders in Spanish, but were provided with, and signed, copies of their loan documents
written in English.
The plaintiffs subsequently defaulted on their loans. Following
Cervantes’s default, trustee Recontrust Company initiated
non-judicial foreclosure proceedings by recording a
notice of a trustee’s sale in the county records. The parties
have not addressed the status of the noticed sale. Following
defaults by Almendarez and Maximo, their lender, First
Franklin, appointed LaSalle Bank as its trustee to initiate nonjudicial
foreclosure proceedings. MERS recorded documents
with the county assigning its beneficial interest in the deeds
of trust to La Salle Bank. Later, Michael Bosco of Tiffany &
Bosco was substituted in as First Franklin’s trustee. Michael
Bosco sold Almendarez’s house at public auction in February
2009. The sale of Maximo’s property was cancelled in April
2009.

3. Procedural history
Cervantes filed suit in March 2009. Almendarez and Maximo
joined the lawsuit, and the plaintiffs filed their First
Amended Complaint a few days later. The First Amended
Complaint names several defendants, including the plaintiffs’
lenders, the trustees for the lenders, MERS, and MERS members
who are named only as co-conspirators based on their
role in using the MERS system. The defendants filed several
motions to dismiss, prompting the plaintiffs to file a motion
for leave to amend, along with a proposed Second Amended
Complaint. The district court held a hearing on the various
motions, at which the plaintiffs orally proposed to amend their
complaint with a wrongful foreclosure claim. The district
court granted the motions to dismiss the First Amended Complaint,
and denied the motion for leave to amend on the
ground that amendment would be futile. The plaintiffs appeal.

II.
We have jurisdiction under 28 U.S.C. § 1291. We review
de novo the district court’s dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).
Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097,
1102 (9th Cir. 2008). “To survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true,
to state a claim to relief that is plausible on its face.” Ashcroft
v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (internal quotation
marks omitted). Dismissal is proper when the complaint does
not make out a cognizable legal theory or does not allege sufficient
facts to support a cognizable legal theory. Mendiondo,
521 F.3d at 1104. A complaint that alleges only “labels and
conclusions” or a “formulaic recitation of the elements of the
cause of action” will not survive dismissal. Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007).

The district court’s denial of leave to amend the complaint
is reviewed for an abuse of discretion. Gompper v. VISX, Inc.,
298 F.3d 893, 898 (9th Cir. 2002). Although leave to amend
should be given freely, a district court may dismiss without
leave where a plaintiff ’s proposed amendments would fail to
cure the pleading deficiencies and amendment would be
futile. See Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection
Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990) (per curiam).1

1The plaintiffs have requested that we take judicial notice of orders of
the United States District Court for the District of Arizona dismissing
complaints without prejudice in pending multidistrict litigation concerning
MERS. The plaintiffs imply that it was inconsistent for the same district
court to deny leave to amend here. We deny the requests because the
orders are not relevant.

III.
The plaintiffs challenge the dismissal of their complaint
without leave to amend but, on appeal, only address the district
court’s: (1) dismissal of their claim for conspiracy to
commit fraud through the MERS system; (2) failure to
address their oral request for leave to add a wrongful foreclosure
claim; (3) dismissal of trustee Tiffany & Bosco from the suit; (4) denial of leave to amend their pleadings regarding equitable tolling of their TILA and Arizona Consumer Fraud Act claims; and (5) dismissal of their claim for intentional infliction of emotional distress. We address these claims in
turn, and do not consider the dismissed claims that are not
raised on appeal. Entm’t Research Group v. Genesis Creative
Group, 122 F.3d 1211, 1217 (9th Cir. 1997) (“We will not
consider any claims that were not actually argued in [appellant’s]
opening brief.”).

1. Conspiracy to commit fraud through the MERS
system
On appeal, the plaintiffs contend that they sufficiently
alleged a conspiracy among MERS members to commit fraud.
In count seven of the First Amended Complaint, they allege
that MERS members conspired to commit fraud by using
MERS as a sham beneficiary, promoting and facilitating predatory
lending practices through the use of MERS, and making
it impossible for borrowers or regulators to track the changes
in lenders.

[1] Under Arizona law, a claim of civil conspiracy must be
based on an underlying tort, such as fraud in this instance.
Baker ex rel. Hall Brake Supply, Inc. v. Stewart Title & Trust
of Phoenix, Inc., 5 P.3d 249, 256 (Ariz. Ct. App. 2000). To
show fraud, a plaintiff must identify “(1) a representation; (2)
its falsity; (3) its materiality; (4) the speaker’s knowledge of
its falsity or ignorance of its truth; (5) the speaker’s intent that
it be acted upon by the recipient in the manner reasonably
contemplated; (6) the hearer’s ignorance of its falsity; (7) the
hearer’s reliance on its truth; (8) the right to rely on it; [and]
(9) his consequent and proximate injury.” Echols v. Beauty
Built Homes, Inc., 647 P.2d 629, 631 (Ariz. 1982).

[2] The plaintiffs’ allegations fail to address several of
these necessary elements for a fraud claim. The plaintiffs have
not identified any representations made to them about the MERS system and its role in their home loans that were false
and material. None of their allegations indicate that the plaintiffs
were misinformed about MERS’s role as a beneficiary,
or the possibility that their loans would be resold and tracked
through the MERS system. Similarly, the plaintiffs have not
alleged that they relied on any misrepresentations about
MERS in deciding to enter into their home loans, or that they
would not have entered into the loans if they had more information
about how MERS worked. Finally, the plaintiffs have
failed to show that the designation of MERS as a beneficiary
caused them any injury by, for example, affecting the terms
of their loans, their ability to repay the loans, or their obligations
as borrowers. Although the plaintiffs allege that they
were “deprived of the right to attempt to modify their toxic
loans, as the true identity of the actual beneficial owner was
intentionally hidden” from them, they do not support this bare
assertion with any explanation as to how the operation of the
MERS system actually stymied their efforts to identify and
contact the relevant party to modify their loans. Thus, the
plaintiffs fail to state a claim for conspiracy to commit fraud
through the MERS system, and dismissal of the claim was
proper.

[3] While the plaintiffs’ allegations alone fail to raise a
plausible fraud claim, we also note that their claim is undercut
by the terms in Cervantes’s standard deed of trust, which
describe MERS’s role in the home loan.2 For example, the
plaintiffs allege they were defrauded because MERS is a
“sham” beneficiary without a financial interest in the loan, yet
the disclosures in the deed indicate that MERS is acting
“solely as a nominee for Lender and Lender’s successors and
assigns” and holds “only legal title to the interest granted by Borrower in this Security Instrument.” Further, while the
plaintiffs indicate that MERS was used to hide who owned the
loan, the deed states that the loan or a partial interest in it “can
be sold one or more times without prior notice to Borrower,”
but that “[i]f there is a change in Loan Servicer, Borrower will
be given written notice of the change” as required by consumer
protection laws. Finally, the deed indicates that MERS
has “the right to foreclose and sell the property.” By signing
the deeds of trust, the plaintiffs agreed to the terms and were
on notice of the contents. See Kenly v. Miracle Props., 412 F.
Supp. 1072, 1075 (D. Ariz. 1976) (explaining that a deed of
trust is “an essentially private contractual arrangement”). In
light of the explicit terms of the standard deed signed by Cervantes,
it does not appear that the plaintiffs were misinformed
about MERS’s role in their home loans.

2Cervantes’s deed of trust, attached to MERSCORP’s reply in support
of its motion to dismiss, may be considered at the pleadings stage because the complaint references and relies on the deed, and its authenticity is unquestioned. See Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007) (per curiam).

[4] Moreover, amendment would be futile. In their proposed
Second Amended Complaint, the plaintiffs seek to add
further detail concerning how MERS works in general and
how it has facilitated the trade in mortgage-backed securities.
But none of the new allegations cure the First Amended Complaint’s
deficiencies: the plaintiffs have not shown that they
received material misrepresentations about MERS that they
detrimentally relied upon. Accordingly, we affirm the district
court’s dismissal, without leave to amend, of the claim for
conspiracy to commit fraud through the MERS system.

2. Wrongful foreclosure
The plaintiffs contend that the district court abused its discretion
by dismissing their complaint without leave to add a
wrongful foreclosure claim. The only mention of a wrongful
foreclosure claim was during the hearing on the plaintiffs’
motion for leave to amend and the defendants’ motions to dismiss.
Although the plaintiffs expressed their intention to add
a wrongful foreclosure claim, they failed to include it in their
proposed Second Amended Complaint. Moreover, during the
hearing, the plaintiffs stated only a general theory of the claim: they posited that any foreclosure on a home loan tracked in the MERS system is “wrongful” because MERS is not a true beneficiary. As the plaintiffs describe it on appeal, their claim is that “the MERS system was used to facilitate wrongful foreclosure based on the naming of MERS as the
beneficiary on the deed of trust, which results in the note and
deed of trust being split and unenforceable.”

[5] The plaintiffs’ oral request to add a wrongful foreclosure
claim was procedurally improper and substantively
unsupported. The district court’s local rules require the plaintiffs
to submit a copy of the proposed amended pleadings
along with a motion for leave to amend. See D. Ariz. Civ. L.
R. 15.1. The plaintiffs failed to do so. Further, they failed to
provide the district court with an explanation of the legal and
factual grounds for adding the claim. It is particularly notable
here that Arizona state courts have not yet recognized a
wrongful foreclosure cause of action. Although a federal court
exercising diversity jurisdiction is “at liberty to predict the
future course of [a state’s] law,” plaintiffs choosing “the federal
forum . . . [are] not entitled to trailblazing initiatives
under [state law].” Ed Peters Jewelry Co. v. C & J Jewelry
Co., Inc., 124 F.3d 252, 262- 63 (1st Cir. 1997) (affirming
dismissal of a wrongful foreclosure claim when no such
action existed under state law). Under the circumstances, we
conclude that it was not an abuse of discretion for the district
court to deny leave to amend without addressing the plaintiffs’
proposed claim for wrongful foreclosure. See Gardner
v. Martino (In re Gardner), 563 F.3d 981, 991 (9th Cir. 2009)
(concluding that the district court did not abuse its discretion
by denying leave to amend where the party seeking leave
failed to attach a proposed amended complaint in violation of
local rules and failed to articulate a factual and legal basis for
amendment).

[6] In any event, leave to amend would be futile because
the plaintiffs cannot state a plausible basis for relief. Looking
to states that have recognized substantive wrongful foreclosure claims, we note that such claims typically are available
after foreclosure and are premised on allegations that the borrower
was not in default, or on procedural issues that resulted
in damages to the borrower. See, e.g., Ed Peters Jewelry Co.,
124 F.3d at 263 n.8 (noting that the Massachusetts Supreme
Court recognized a claim for wrongful foreclosure where no
default had occurred in Mechanics Nat’l Bank of Worcester v.
Killeen, 384 N.E.2d 1231, 1236 (Mass. 1979)); Fields v. Millsap
& Singer, P.C., 295 S.W.3d 567, 571 (Mo. Ct. App.
2009) (stating that “a plaintiff seeking damages in a wrongful
foreclosure action must plead and prove that when the foreclosure
proceeding was begun, there was no default on its part
that would give rise to a right to foreclose” (internal alteration
and citation omitted)); Gregorakos v. Wells Fargo Nat’l
Ass’n, 647 S.E.2d 289, 292 (Ga. App. 2007) (“In Georgia, a
plaintiff asserting a claim of wrongful foreclosure must establish
a legal duty owed to it by the foreclosing party, a breach
of that duty, a causal connection between the breach of that
duty and the injury it sustained, and damages.” (internal quotation
marks and alteration omitted)); Collins v. Union Fed.
Sav. & Loan Ass’n, 662 P.2d 610, 623 (Nev. 1983) (“[T]he
material issue of fact in a wrongful foreclosure claim is
whether the trustor was in default when the power of sale was
exercised.”). Similarly, the case that the plaintiffs cite for the
availability of a wrongful foreclosure claim under Arizona
law, Herring v. Countrywide Home Loans, Inc., No. 06-2622,
2007 WL 2051394, at *6 (D. Ariz. July 13, 2007), recognized
such a claim where the borrower was not in default at the time
of foreclosure. The plaintiffs have not alleged that Cervantes’s
or Maximo’s homes were sold and, in any event, all are
in default and have not identified damages. Thus, under the
established theories of wrongful foreclosure, the plaintiffs
have failed to state a claim.

Instead, the plaintiffs advance a novel theory of wrongful
foreclosure. They contend that all transfers of the interests in
the home loans within the MERS system are invalid because
the designation of MERS as a beneficiary is a sham and the system splits the deed from the note, and, thus, no party is in
a position to foreclose.

[7] Even if we were to accept the plaintiffs’ premises that
MERS is a sham beneficiary and the note is split from the
deed, we would reject the plaintiffs’ conclusion that, as a necessary
consequence, no party has the power to foreclose. The
legality of MERS’s role as a beneficiary may be at issue
where MERS initiates foreclosure in its own name, or where
the plaintiffs allege a violation of state recording and foreclosure
statutes based on the designation. See, e.g., Mortgage
Elec. Registration Sys. v. Saunders, 2 A.3d 289, 294-97 (Me.
2010) (concluding that MERS cannot foreclose because it
does not have an independent interest in the loan because it
functions solely as a nominee); Landmark Nat’l Bank, 216
P.3d at 165-69 (same); Hooker v. Northwest Tr. Servs., No.
10-3111, 2011 WL 2119103, at *4 (D. Or. May 25, 2011)
(concluding that the defendants’ failure to register all assignments
of the deed of trust violated the Oregon recording laws
so as to prevent non-judicial foreclosure). But see Jackson,
770 N.W.2d at 501 (concluding that defendants’ failure to
register assignments of the beneficial interest in the mortgage
loan did not violate Minnesota recording laws so as to prevent
non-judicial foreclosure). This case does not present either of
these circumstances and, thus, we do not consider them.

[8] Here, MERS did not initiate foreclosure: the trustees
initiated foreclosure in the name of the lenders. Even if
MERS were a sham beneficiary, the lenders would still be
entitled to repayment of the loans and would be the proper
parties to initiate foreclosure after the plaintiffs defaulted on
their loans. The plaintiffs’ allegations do not call into question
whether the trustees were agents of the lenders. Rather, the
foreclosures against Almendarez and Maximo were initiated
by the trustee Tiffany & Bosco on behalf of First Franklin,
who is the original lender and holder of Almendarez’s and
Maximo’s promissory notes. Although it is unclear from the
pleadings who the current lender is on plaintiff Cervantes’s loan, the allegations do not raise any inference that the trustee
Recontrust Company lacks the authority to act on behalf of
the lender.

Further, the notes and deeds are not irreparably split: the
split only renders the mortgage unenforceable if MERS or the
trustee, as nominal holders of the deeds, are not agents of the
lenders. See Landmark Nat’l Bank, 216 P.3d at 167. Moreover,
the plaintiffs have not alleged violations of Arizona
recording and foreclosure statutes related to the purported
splitting of the notes and deeds.

[9] Accordingly, the plaintiffs have not raised a plausible
claim for wrongful foreclosure, and we conclude that dismissal
of the complaint without leave to add such a claim was
not an abuse of discretion.

3. Injunctive relief against Tiffany & Bosco
[10] The plaintiffs contend that the district court improperly
dismissed the trustee Tiffany & Bosco from this suit
under Arizona Revised Statute 33-807(E). Section 33-807(E)
provides that a “trustee is entitled to be immediately dismissed”
from any action other than one “pertaining to a
breach of the trustee’s obligations,” because the trustee is otherwise
bound by an order entered against a beneficiary for
actions that the trustee took on its behalf. The only breach that
the plaintiffs allege against Tiffany & Bosco is that it failed
to recognize that its appointment was invalid. According to
the plaintiffs, the appointment was invalid because MERS is
a sham beneficiary and lacks power to “appoint” a trustee.
However, a trustee such as Tiffany & Bosco has the “absolute
right” under Arizona law “to rely upon any written direction
or information furnished to him by the beneficiary.” Ariz.
Rev. Stat. § 33-820(A). Thus, Tiffany & Bosco did not have
an obligation to consider whether its presumptively legal
appointment as trustee, which was recorded in the county
records, was invalid based on the original designation of MERS as a beneficiary. Accordingly, Tiffany & Bosco was
properly dismissed.

4. Equitable Tolling and Estoppel
The plaintiffs contend that the district court failed to
address the equitable tolling of their claims under TILA and
the Arizona Consumer Fraud Act and, in any event, abused its
discretion by denying the plaintiffs leave to amend their allegations
in support of equitable tolling and estoppel. A district
court may dismiss a claim “[i]f the running of the statute is
apparent on the face of the complaint.” Jablon v. Dean Witter
& Co., 614 F.2d 677, 682 (9th Cir. 1980). However, a district
court may do so “only if the assertions of the complaint, read
with the required liberality, would not permit the plaintiff to
prove that the statute was tolled.” Id.

[11] The plaintiffs’ claims under TILA and the Arizona
Consumer Fraud Act are subject to one-year statutes of limitations.
15 U.S.C. § 1640(e); Ariz. Rev. Stat. § 12-541(5). Both
limitations periods began to run when the plaintiffs executed
their loan documents, because they could have discovered the
alleged disclosure violations and discrepancies at that time.
See 15 U.S.C. § 1640(e) (the one-year limitations period for
a TILA claim begins when the violation occurred); Alaface v.
Nat’l Inv. Co., 892 P.2d 1375, 1379 (Ariz. Ct. App. 1994) (a
cause of action for consumer fraud under Arizona law accrues
“ ‘when the defrauded party discovers or with reasonable diligence
could have discovered the fraud’ ”). The running of the
limitations periods on both claims is apparent on the face of
the complaint because the plaintiffs obtained their loans in
2006, but commenced their action in 2009.

[12] The plaintiffs have not demonstrated a basis for equitable
tolling of their claims. “We will apply equitable tolling
in situations where, despite all due diligence, the party invoking
equitable tolling is unable to obtain vital information bearing
on the existence of the claim.” Socop-Gonzalez v. I.N.S., 272 F.3d 1176, 1193 (9th Cir. 2001) (internal quotation marks
and alterations omitted). The plaintiffs suggest that their
TILA claim should have been tolled because Almendarez and
Maximo speak only Spanish, but received loan documents
written in English. However, the plaintiffs have not alleged
circumstances beyond their control that prevented them from
seeking a translation of the loan documents that they signed
and received. Thus, the plaintiffs have not stated a basis for
equitable tolling. See Hubbard v. Fidelity Fed. Bank, 91 F.3d
75, 79 (9th Cir. 1996) (per curiam) (declining to toll TILA’s
statute of limitations when “nothing prevented [the mortgagor]
from comparing the loan contract, [the lender’s] initial
disclosures, and TILA’s statutory and regulatory requirements”).

[13] In addition, the plaintiffs have not demonstrated a
basis for equitable estoppel. Equitable estoppel “halts the statute
of limitations when there is active conduct by a defendant,
above and beyond the wrongdoing upon which the plaintiff ’s
claim is filed, to prevent the plaintiff from suing in time.” See
Guerrero v. Gates, 442 F.3d 697, 706 (9th Cir. 2006) (internal
quotation marks omitted). The First Amended Complaint
alleges only that the defendants “fraudulently misrepresented
and concealed the true facts related to the items subject to disclosure.”
The plaintiffs, however, have failed to specify what
true facts are at issue, or to establish that the alleged misrepresentation
and concealment of facts is “above and beyond the
wrongdoing” that forms the basis for their TILA and Arizona
Consumer Fraud Act claims. Guerrero, 442 F.3d at 706.

[14] The district court therefore properly dismissed the
plaintiffs’ claims under both TILA and the Arizona Consumer
Fraud Act as barred by a one-year statute of limitations. The
plaintiffs did not add any new facts to the proposed Second
Amended Complaint, and do not suggest any on appeal, that
would support applying either equitable tolling or equitable
estoppel to their claims. Thus, the district court also did not
abuse its discretion by denying leave to amend.

5. Intentional Infliction of Emotional Distress
The plaintiffs contend that they sufficiently stated a claim
for intentional infliction of emotional distress. When ruling on
a motion to dismiss such a claim under Arizona law, a district
court may determine whether the alleged conduct rises to the
level of “extreme and outrageous.” See Cluff v. Farmers Ins.
Exch., 460 P.2d 666, 668 (Ariz. Ct. App. 1969), overruled on
other grounds by Godbehere v. Phoenix Newspapers, Inc.,
783 P.2d 781 (Ariz. 1989).

[15] Here, the plaintiffs fail to meet that threshold. They
allege that the lenders’ “actions in targeting Plaintiffs for a
loan, misrepresenting the terms and conditions of the loan,
negotiating the loan, and closing the loan” were “extreme and
outrageous because of the Plaintiffs’ vulnerability” and “because
the subject of the loan was each Plaintiff ’s primary residence.”
This conduct, though arguably offensive if true, is
not so outrageous as to go “beyond all possible bounds of
decency.” Lucchesi v. Frederic N. Stimmell, M.D., Ltd., 716
P.2d 1013, 1015 (Ariz. 1986) (en banc). The plaintiffs essentially
allege that the lenders offered them loans that the lenders
knew they could not repay; this is not inherently “extreme
and outrageous.” Moreover, the plaintiffs do not allege any
additional support for their claim in their proposed Second
Amended Complaint. Accordingly, the district court properly
dismissed, without leave to amend, the plaintiffs’ claim for
intentional infliction of emotional distress.

IV.
The district court properly dismissed the plaintiffs’ First
Amended Complaint without leave to amend. The plaintiffs’
claims that focus on the operation of the MERS system ultimately
fail because the plaintiffs have not shown that the
alleged illegalities associated with the MERS system injured
them or violated state law. As part of their fraud claim, the
plaintiffs have not shown that they detrimentally relied upon any misrepresentations about MERS’s role in their loans. Further,
even if we were to accept the plaintiffs’ contention that
MERS is a sham beneficiary and the note is split from the
deed in the MERS system, it does not follow that any attempt
to foreclose after the plaintiffs defaulted on their loans is necessarily
“wrongful.” The plaintiffs’ claims against their original
lenders fail because they have not stated a basis for
equitable tolling or estoppel of the statutes of limitations on
their TILA and Arizona Consumer Fraud Act claims, and
have not identified extreme and outrageous conduct in support
of their claim for intentional infliction of emotional distress.

Thus, we AFFIRM the decision of the district court.

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What Homeowners in Foreclosure Defense Needs to Know About the Issues of “Standing vs. Capacity to Sue”

18 Sunday Aug 2013

Posted by BNG in Affirmative Defenses, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Litigation Strategies, Mortgage Laws, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Court, Lawsuit, Mastropaolo, Motion (legal), New York, Plaintiff, Wells Fargo, Wells Fargo Bank

Homeowners in Judicial foreclosure states need to realize that Banks claim of ownership of the note is not an issue of standing but an element of its cause of action which it must plead and prove

The term “standing” has been applied by the courts to two legally distinct concepts. The first is legal capacity, or authority to sue. The second is whether a party has asserted a sufficient interest in the outcome of a dispute.

Standing and capacity to sue are related, but distinguishable legal concepts. Capacity requires an inquiry into the litigant’s status, i.e., its “power to appear and bring its grievance before the court”, while standing requires an inquiry into whether the litigant has “an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue.”

Wells Fargo Bank Minnesota, Nat. Ass’n v Mastropaolo, 42 AD3d239, 242 (2d Dept 2007) (internal citations omitted). Both concepts can result in dismissal on a pre answer motion by the defendant and are waived if not raised in a timely manner.

In some Jurisdictions such as New York, an action may be dismissed based on the grounds that the Plaintiff lacks the legal capacity to sue. CPLR 3211(a)(3) It governs no other basis for dismissal. CPLR 3211(e) provides that a motion to dismiss pursuant to CPLR 3211(a)(3) is waived if not raised in a pre-answer motion or a responsive pleading.

Many decisions treat the question of whether the Plaintiff in a foreclosure action owns the note and mortgage as if it were a question of standing and governed by CPLR 3211(e).

Citigroup Global Markets Realty Corp. v. Randolph Bowling , 25 Misc 3d 1244(A), 906 N.Y.S.2d 778 (Sup. Ct. Kings Cty 2009); Federal Natl. Mtge. Assn. v. Youkelsone, 303 AD2d546, 546—547 (2d Dept 2003);
Nat’l Mtge. Consultants v. Elizaitis, 23 AD3d 630, 631 (2dDept 2005);
Wells Fargo Bank, N.A. v. Marchione, 2009 NY Slip Op 7624, (2d Dept 2009)

There is a difference between the capacity to sue which gives the right to come into court, and possession of a cause of action which gives the right to relief. Kittinger v Churchill Evangelistic Assn Inc., 239 AD 253, 267 NYS 719 (4th Dept 1933). Incapacity to sue is not the same as insufficiency of facts to sue upon. Ward v Petri, 157 NY3d 301 (1898)

In the case of Ohlstein v Hillcrest, a defendant moved to dismiss a complaint in part based on lack of legal capacity to sue where plaintiff had assigned her stock. The Court denied that branch of the motion holding that even if plaintiff had assigned her stock, “the defect to be urged is that the complaint does not estate [sic] a cause of action in favor of the one who is suing, the alleged assignor – not that the plaintiff does not have the legal capacityto sue. Legal incapacity, as properly understood, generally envisages a defect in legal status,not lack of a cause of action in one who is sui juris.” Ohlstein v Hillcrest, 24 Misc 2d 212,214, 195 NYS2d 920, 922 (Sup Ct NY Co 1959).

The difference was articulated by the Court in the case of Hebrew Home for Orphans v Freund, 208 Misc. 658, 144 N.Y.S.2d 608 (Sup Ct Bx 1955). The plaintiff in that case sought a judgment declaring that an assignment of a mortgage it held was valid. The defendants moved to dismiss the complaint on the grounds that since the assignment was not accompanied by delivery of the bond and mortgage to plaintiff, plaintiff did not own the bond and mortgage and thus had no legal capacity to sue or standing to maintain the action. The Court denied the motion, stating:

The application to dismiss the complaint on the alleged ground that the plaintiff lacks legal capacity to sue rests upon a misapprehension of the meaning of the term. See Gargiulo v.Gargiulo, 207 Misc. 427, 137 N.Y.S.2d 886. Rule 107(2) of the Rules of Civil Practice relates to a plaintiff’s right to come into Court, and not to his possessing a cause of action. Idat 660-661, 610.

The Court then quotes Kittinger v Churchill for the principle that,

“The provision for dismissal of the complaint where the plaintiff has not the capacity to sue (Rules of Civil Practice, rules 106, 107) has reference to some legal disability, such as infancy, or lunacy, or want of title in the plaintiff to the character in which he sues. There is a difference between capacity to sue, which gives the right to come into court, and possession of a cause of action, which gives the right to relief in court.
Ward v. Petrie, 157 NY 301, 51 N.E. 1002; Bank of Havana v. Magee,
20 NY 355; Ullman v. Cameron, 186 NY 339, 78 N.E.1074. The plaintiff is an individual suing as such. He is under no disability, and sues in norepresentative capacity. He is entitled to bring his suits before the court, and to cause a summons to be issued, the service of which upon the defendants brings the defendants in to court. There is no lack of capacity to sue.

The other meaning of standing involves whether the party bringing the suit has a sufficient interest in the dispute. Some cases have held that in this context, standing is jurisdictional, reasoning that where there is no aggrieved party, there is no genuine controversy, and where there is no genuine controversy, there is no subject matter jurisdiction.
Stark v Goldberg, 297 AD2d 203, 204(1st Dept 2002); xelrod v New York StateTeachers’ Retirement Sys., 154 AD2d 827, 828 (3rd Dept 1989).

Some courts have held that the jurisdiction of the court to hear the controversy is not affected by whether the party pursuing the action is, in fact, a proper party.They have held that if not raised in the answer or pre-answer motion to dismiss, the defense that the a party lacks standing is waived. Wells Fargo Bank Minnesota, Nat. Ass’n v. Perez,70 AD3d 817, 818, 894 N.Y.S.2d 509, 510 (2nd Dept 2010), Countrywide Home Loans, Inc.v. Delphonse, 64 AD3d 624, 625, 883 N.Y.S.2d 135 (2nd Dept 2009),
HSBC Bank, USA v. Dammond, 59 AD3d 679, 680, 875 N.Y.S.2d 490 (2nd Dept 2009)

The issue of whether a Plaintiff owns the mortgage and note is a different question from whether it has an interest in the dispute. Whether a party has a sufficient interest in the dispute is determined by the facts alleged in the complaint, not whether Plaintiff can prove the allegations.
Wall St. Associates v. Brodsky, 257 AD2d 526, 684 N.Y.S.2d 244 (1st Dept1999), Kempf v. Magida, 37 AD3d 763, 764, 832 N.Y.S.2d 47, 49 (2nd Dept 2007). For the purpose of determining whether a party has sufficient interest in the case the allegations areassumed to be true.

It is important to note that This issue is not analogous to the issue of whether citizens have standing to seek judicial intervention in response to what they believe to be governmental actions which would impair the rights of members of society, or a particular group of citizens, (e.g. Schulz v. State, 81 NY2d 336, 343, 615 N.E.2d 953, 954 (1993), or whether registered voters have standing to challenge the denial of the right to vote in a referendum pursuant to Section 11 of Article VII of the State Constitution, or whether commercial fishermen have standing to complain of the pollution of the waters from which they derive their living, see also Leo v. Gen. Elec. Co., 145 AD2d 291, 294, 538 N.Y.S.2d 844, 847 (2nd Dept 1989). The issue of standing in these types of cases turn on whether the claimants have an interest sufficiently distinct from societyin general.

Foreclosure actions implicate a concrete interest specific to a plaintiff, and the determination must be made as to whether it has been aggrieved and is therefore entitled to receive monetary damages for the alleged breach of the law.

Therefore homeowners needs to realize that when Banks pled that it owns the note and mortgage and asserts the right to foreclose on the mortgage which it asserts is in default. If it is successful in proving its claims, then usually it is entitled to receive the proceeds of the sale of the mortgaged property. Homeowners should understand that the objection that the Plaintiff in fact does not own the note and mortgage is not a defense based on a lack of standing. Courts will usually claim homeowners “does not say” (insufficient facts were alleged). But that the homeowner’s argument is that the facts alleged are not true. It is not a question of whether the Bank has alleged a sufficient interest in the dispute, but of whether the Bank can prove its prima facie case.

In Judicial States where the Banks are the plaintiff; unlike standing, denial of the Plaintiff’s claim that it owns the note and mortgage is not an affirmative defense because it is usually a denial of an allegation in the complaint that is an element of the Plaintiff’s cause of action.

In a Judicial foreclosure case, the Plaintiff must plead and prove as part of its prima facie case that it owns the note and mortgage and has the right to foreclose. Wells Fargo Bank, N.A., 80AD3d 753, 915 N.Y.S.2d 569 (2d Dept 2011); Argent Mtge. Co., LLC v. Mentesana, 79AD3d 1079, 915 N.Y.S.2d 591 (2d Dept 2010); Campaign v Barba , 23 AD3d 327, 805 NYS2d 86 (2nd Dept 2005).

However, it is usually not enough for the Defendant (Homeowner) to filed a pro se “answer” containing a “general denial”, which is a denial of all of “Plaintiff’s allegations”.

In Hoffstaedter v. Lichtenstein , 203 App.Div. 494, 496, 196 N.Y.S. 577 (1st Dept 1922),the First Department held that the general denial put the allegations in the plaintiff’scomplaint in issue. In that case, the defendant executed a note in favor of the plaintiff as a promise to pay for certain goods. When plaintiff brought an action to recover on the note, the defendant answered with a general denial. It went on to state that “[i]t is elementary that under a general denial a defendant may disprove any fact which the plaintiff is required to prove to establish a prima facie cause of action.” Id., at 578.

The Court of Appeals cited Hoffstaedter v. Lichtenstein in holding that a general denial puts in issue those matters already pled.
Munson v. New York Seed Imp. Co-op., Inc., 64 NY2d 985, 987, 478 N.E.2d 180, 181 (1985).The general denials contained in the answer enable defendant to controvert the facts upon which the plaintiff bases her right to recover. Strook Plush Company v. Talcott, 129 AD 14, 113 NYS 214 (2nd Dept 1908). A generaldenial is sufficient to challenge all of the allegations in a complaint. Bodine v. White , 98 NYS232, 233 (App. Term 1906).The Second Department in Gulati v. Gulati, 60 AD3d 810, 811-12, 876 N.Y.S.2d 430, 432-33 (2nd Dept 2009), held it was that where a claim would not take the plaintiff by surprise and “does not raise issues of fact not appearing on the face of the complaint”, a denial of the allegations in the plaintiff’s complaint was sufficient. It heldthat where the plaintiff alleged as an element of her prima facie case that the defendant abandoned the marital residence without cause or provocation, and the defendant denied these allegations in his answer, defendant did not need to further allege abandonment as an affirmative defense

The Fourth Department in Stevens v. N. Lights Associates, 229 AD2d 1001, 645 N.Y.S.2d 193, 194 (4th Dept 1996), found that a denial by defendant that it was in control of the premises where plaintiff fell did not need to be separately pled as a defense, as the denialof control did not raise any issue of fact which had not already been pled in the complaint.See also
Scully v. Wolff, 56 Misc. 468, 107 N.Y.S. 181 (App. Term 1907), Bodine v. White,98 N.Y.S. 232 (App. Term 1906).

In this case, Defendant’s contesting Plaintiff’s claim in the complaint that it owns the note and mortgage could not take the Plaintiff by surprise as a general denial contests Plaintiff’s factual allegations in the complaint itself, and does not rely upon extrinsic facts. Since ownership of the note was pled in the complaint and is an element of the Plaintiff’s cause of action, Defendant did not waive the defense that Plaintiff did not own the note, because he made a general denial to the factual allegations contained in the complaint.

In fact, the identity of the owner of the note and mortgage is information that is often in the exclusive possession of the party seeking to foreclose. Mortgages are routinely transferred through MERS, without being recorded. The notes underlying the mortgages, as negotiable instruments, are negotiated by mere delivery without a recorded assignment or notice to the borrower. A defendant has no method to reliably ascertain who in fact owns the note, within the narrow time frame allotted to file an answer.

In jurisdictions such as New York, CPLR 3018(b) provides that an affirmative defense is any matter “which if not pleaded would be likely to take the adverse party by surprise” or “would raise issues of fact not appearing on the face of a prior pleading”.

CPLR 3018(b) also lists some common affirmative defenses, although the list is not exhaustive. The list of affirmative defenses in CPLR 3018(b) are those which raise issues such as res judicata or statute of limitations which are based on facts not previously alleged in the pleadings.

“The defendant has the burden of proof of affirmative defenses, which in effect assume the truth of the allegations of the complaint and present new matter in avoidance thereof.” 57 NY Jur. 2d Evidence and Witnesses 165″.

To survive motion to dismiss or Summary Judgement, it is important that Pro Se Homeowners using “Standing” as a foreclosure defense also review their PSA in order to include missing or lack of assignments.

This defense will be based on “Conveyance from the Depositor to the Trust”.

Homeowners arguments under these defense will be based that the Trustee violated the terms of the trust by acquiring the note directly from the sponsor’s successor in interest rather than from the Depositor, for instance ABC, as required by the PSA.

In Article II, section 2.01 Conveyance of Mortgage Loans, the PSA requires that the Depositor deliver and deposit with the Trustee the original note, the original mortgage and an original assignment . The Trustee is then obligated to provide to the Depositor an acknowledgment of receipt of the assets before the closing date. PSA Article II, Section 2.01.

The rationale behind this requirement is to provide at least two intermediate levels of transfer to ensure the assets are protected from the possible bankruptcy by the originator which permits the security to be provided with the rating required for the securitization to be saleable.
Deconstructing the Black Magic of Securitized Trusts, Roy D. Oppenheim Jacquelyn K. Trask-Rahn 41 Stetson L. Rev. 745 Stetson Law Review (Spring 2012).

So to further the arguement, homeowners should argue that the assignment of the note and mortgage from original lender to Trustee which is called (A-D), rather than from the Depositor ABC violates section 2.01 of the PSA which requires that the Depositor deliver to and deposit the original note, mortgage and assignments to the Trustee.

In most cases, “if homeowner’s pleadings are in order”, meaning (The evidence submitted by homeowner that the note was acquired after the closing date and that assignment was not made by the Depositor), is sufficient to raise questions of fact in the court as to whether the Bank owns the note and mortgage, and usually will Deny motion to Dismiss(in non-juidical States) or preclude granting Bank’s summary judgment (in Judicial States).

The courts will usually find and conclude that the assignment of the homeowner’s note and mortgage, having not been assigned from the Depositor to the Trust, is therefore void as in being in contravention of the PSA.

For More Info How You Can Use Well Structured Pleadings Containing Facts and Case Laws Necessary To Win Your Foreclosure Defense Visit: http://www.fightforeclosure.net

The Effects of “US Bank v. Ibanez” in Mortgage Securitization Cases

24 Monday Jun 2013

Posted by BNG in Appeal, Case Laws, Case Study, Foreclosure Defense, Fraud, Legal Research, Litigation Strategies, Non-Judicial States, Notary, Note - Deed of Trust - Mortgage, Pleadings, Pro Se Litigation, Securitization, Trial Strategies

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Tags

Bank of America, Foreclosure, Ibanez, Massachusetts, Massachusetts Supreme Judicial Court, U.S. Bancorp, US Bank, Wells Fargo

THIS DECISION WAS A GREAT WIN TO HOMEOWNERS!

Background

For those new to the case, the problem the Court dealt with in this case is the validity of foreclosures when the mortgages are part of securitized mortgage lending pools. When mortgages were bundled and packaged to Wall Street investors, the ownership of mortgage loans were divided and freely transferred numerous times on the lenders’ books. But the mortgage loan documentation actually on file at the Registry of Deeds often lagged far behind.

In the Ibanez case, the mortgage assignment, which was executed in blank, was not recorded until over a year after the foreclosure process had started. This was a fairly common practice in Massachusetts, and I suspect across the U.S. Mr. Ibanez, the distressed homeowner, challenged the validity of the foreclosure, arguing that U.S. Bank had no standing to foreclose because it lacked any evidence of ownership of the mortgage and the loan at the time it started the foreclosure.

Mr. Ibanez won his case in the lower court in 2009, and due to the importance of the issue, the Massachusetts Supreme Judicial Court took the case on direct appeal.

The SJC Ruling: Lenders Must Prove Ownership When They Foreclose

The SJC’s ruling can be summed up by Justice Cordy’s concurring opinion:

“The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments. The court’s opinion clearly states that such assignments do not need to be in recordable form or recorded before the foreclosure, but they do have to have been effectuated.”

The Court’s ruling appears rather elementary: you need to own the mortgage before you can foreclose. But it’s become much more complicated with the proliferation of mortgage backed securities (MBS’s) –which constitute 60% or more of the entire U.S. mortgage market. The Court has held unequivocally that the common industry practice of assigning a mortgage “in blank” — meaning without specifying to whom the mortgage would be assigned until after the fact — does not constitute a proper assignment, at least in Massachusetts.

The Case in Review:

On Jan. 7, 2011, the Massachusetts Supreme Judicial Court
ruled against U.S. Bancorp and Wells Fargo & Co. in their appeal of a Massachusetts Land Court decision in March 2009 invalidating their foreclosure sales because both banks had failed to make the requisite showing that they were the mortgage holders at the time of the foreclosures. The case made headlines across the country, but turned on the prosaic notion that only the mortgage holder can foreclose on a mortgage.

Documentation provided by the banks in their efforts to prove that they were the present assignees of the mortgages at the time of the notice of foreclosure and subsequent foreclosure sale failed to convince the court that the proper party had initiated the foreclosure.

Because Massachusetts does not require a mortgage holder to obtain judicial authorization to foreclose on Massachusetts property, the decision in U.S. Bank National Association v. Ibanez serves as a forewarning to banks that foreclosures will only be upheld as valid by a showing of strict compliance with the statutory power of sale requirements, that is, that they were the mortgage holder at the time of notice of foreclosure and execution of the foreclosure sale.

Copycat litigation has followed in Massachusetts and elsewhere, but the ramifications of Ibanez could be broader than just an increase in courtroom activity. Legislatures will wrestle with the possibility of increased regulations, and prosecutors will likely scour the files for possible illegal activity concerning the dates of mortgage transfers.

Case Background
In July 2007, U.S. Bank NA and Wells Fargo Bank NA, as trustees of two securitization trusts, foreclosed on the mortgages of the respective properties and purchased the properties at the foreclosure sale. In September and October 2008, U.S. Bank and Wells Fargo brought actions separately in the Massachusetts Land Court seeking among other things, a declaration that title to the two properties was vested in them.

The Land Court heard the two actions together and ruled that the foreclosure sales were invalid because the banks acquired the mortgages by assignment only after the foreclosure sales and therefore had no interest in the mortgages being foreclosed at the time of the publication of the notices of sale or the foreclosure sales.

At issue was whether the banks had shown sufficient documentation that they were in fact the mortgage holders at the time of the sales pursuant to a valid chain of assignments. In U.S. Bank’s case, the original lender was Rose Mortgage Inc., which assigned the mortgage in blank. At some point the blank space was stamped with Option One Mortgage Corp. as assignee, and was recorded on June 7, 2006.

On Jan. 23, 2006, before recording, Option One executed an assignment in blank. U.S. Bank claimed that Option One assigned the mortgage to Lehman Brothers Bank FSB, which assigned it to Lehman Brothers Holdings Inc., which assigned it to the Structured Asset Securities Corp., which then assigned the mortgage, pooled with over 1,000 other loans, to U.S. Bank, as trustee, on or around Dec. 1, 2006.

U.S. Bank filed for foreclosure on April 17, 2007, and purchased the property at the foreclosure sale on July 5, 2007. On Sept. 2, 2008, American Home Mortgage Servicing Inc., as successor in interest to Option One, the record holder of the mortgage, executed a written assignment of the mortgage to U.S.Bank, as trustee, which was then recorded on Sept. 11, 2008.

In the Land Court proceeding, however, U.S. Bank failed to put in the record the trust agreement, which it claimed constituted the assignment of the mortgage. U.S. Bank did offer the private placement memorandum, an unsigned offer of mortgage-backed securities to potential investors, which included the representation that mortgages “will be” assigned to the trust. The memorandum also stated that each mortgage would be identified in a schedule attached to the trust agreement. U.S. Bank also did not provide any such schedule identifying the particular loan as among the mortgages assigned to the trust.

In Wells Fargo’s case, the original lender was Option One, which executed an assignment of the mortgage in blank on May 25, 2005. Option One later assigned the mortgage to Bank of America Corp. in a flow sale and servicing agreement, which then assigned it to Asset Backed Funding Corp., which assigned it, pooled with others, to Wells Fargo, as trustee, pursuant to a pooling and servicing agreement.

On July 5, 2007, the day Wells Fargo purchased the property, Option One, the record mortgage holder, executed an assignment of the mortgage to Wells Fargo as trustee, which was recorded on May 12, 2008, but had an effective date of April 18, 2007.

In the Land Court proceeding, Wells Fargo did not provide the flow sale and servicing agreement reflecting the assignment by Option One to Bank of America. Wells Fargo did produce an unexecuted copy of the mortgage loan purchase agreement, which made reference to a schedule listing the assigned mortgages, but failed to provide a schedule showing that the mortgage was among those assigned to Asset Backed Funding Corporation.

Wells Fargo also provided a copy of the pooling and servicing agreement, but this copy was only downloaded from the U.S.Securities and Exchange Commission website, was unsigned and did not contain the loan schedules referenced in the agreement. Wells Fargo produced a schedule that it represented identified the mortgage by the property’s ZIP code and city because the payment history and loan amount matched the loan at issue.

SJC Decision
In Massachusetts, a mortgagee must strictly comply with the statutory power of sale by proving its authority to foreclose and complying with the notice requirement. Only a present holder of the mortgage is authorized to foreclose on the mortgaged property. As highlighted by the SJC in this case, the statutory power is also limited to those who are holders of mortgages pursuant to valid, verifiable assignments at the time of the notice of sale and the subsequent foreclosure sale. U.S. Bank and Wells Fargo failed to prove that they were.

The court rendered U.S. Bank’s foreclosure invalid for several reasons: 1) It failed to produce the document,the trust agreement, which it claimed assigned the mortgage to it; 2) the private placement memorandum described the trust agreement as having only an intent to assign mortgages to U.S. Bank in the future, not as an actual assignment; 3) U.S. Bank did not produce the schedule of loans mortgages that was supposedly attached to the agreement, so it failed to show that the mortgage at issue was among those assigned by that agreement; and 4) U.S. Bank failed to produce any evidence that the assigning party, Structured Asset Securities Corp., ever held the mortgage to be assigned. The court determined that Option One, not U.S. Bank, was the mortgage holder at the time of the foreclosure.

Similarly, the court rendered Wells Fargo’s foreclosure invalid because: 1) While the pooling and servicing agreement reflected a present assignment, the mortgage loan schedule provided by Wells Fargo failed to identify with specificity the mortgage at issue as one of the mortgages assigned; and 2) Wells Fargo did not provide any documentation showing that Asset Backed Funding Corporation held the mortgage that it was purportedly assigning under the pooling and servicing agreement. Because Wells Fargo failed to submit anything demonstrating that the mortgage was ever assigned by Option One to another entity before the notice and sale, the court found that Option One was the mortgage holder.

Ibanez in Practice
The SJC provided insight into the documentation it believes is required to support a valid foreclosure in the case of assignments and securitization trusts. Whether pending and future legislation or regulations change how the court views these matters remains to be seen.

* An assignment does not have to be in recordable form at the time of the notice of sale or the foreclosure sale, though it may be the better practice. An executed agreement that assigns a pool of mortgages along with the schedule that “clearly and specifically” identifies the mortgage at issue may suffice to establish the trustee as mortgage holder.
* A bank must provide proof that the assignment was made by a party that validly held the mortgage. This can be accomplished by providing a chain of assignment linking the bank to the record holder or a single assignment from the record holder of the mortgage.
* An assignment in blank does not constitute a lawful assignment of a mortgage.

* An assignment of a note without an assignment of the underlying mortgage does carry with it an assignment of the mortgage, and therefore does not give the holder of the note sufficient financial interest in the mortgage to permit it to foreclose.
* A mortgage holder may not be permitted to rely on Title Standard No. 58 issued by the Real Estate Bar Association for Massachusetts for the proposition that an entity that does not hold a mortgage may foreclose on a property and later cure the cloud on title by a later assignment of a mortgage. However, an assignment that is confirmatory of an earlier, valid assignment made prior to publication of notice and execution of sale may be executed and recorded after the foreclosure without defecting title. A confirmatory assignment cannot confirm an assignment that was not validly made earlier, or backdate an assignment being made for the first time.
* A post foreclosure assignment may not be treated as a pre-foreclosure assignment by declaring an “effective date” that precedes the notice of sale and foreclosure.

Retroactive Implications of Ibanez
Because the court found that it was not creating new law, but rather applying tried and true standards, it made its decision retroactive. In his decision, Judge Gants stated, “The legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.” Thus it is likely that homeowners will seek recovery for homes that were wrongfully foreclosed upon.

But beyond that, questions arise. For example, Massachusetts is not a state that requires judicial approval of foreclosures, whereas about 23 states already require some sort of judicial authorization or judicial intervention in the foreclosure process. Would the facts in Ibanez have allowed a foreclosure to progress as far as it did in a state that required judicial foreclosure? Should there be more regulations around the foreclosure process? The Ibanez court didn’t seem to think so, as it found the existing rules to be relatively straightforward and capable of controlling the situation.

Even so, lawmakers in Massachusetts wasted little time in introducing legislation that appeared to be reactionary to the Ibanez decision. Massachusetts Attorney General Martha Coakley drafted legislation that would reportedly establish standards to ensure that creditors undertake “commercially reasonable efforts to avoid unnecessary foreclosures” and would also codify Ibanez by requiring a creditor to show it is the current mortgage holder before foreclosing and require creditors to record their assignments before commencing foreclosure proceedings.

A violation of this legislation as introduced would constitute a violation of the Massachusetts Consumer Protection Act as well. There have been at least 10 other bills introduced in the Massachusetts House and Senate that address various aspects of the foreclosure process, including legislation that would require foreclosure mediations and judicial review of foreclosures.

The great danger may be for an overeager bank official who realizes that the bank’s paperwork suffers from the defects outlined in Ibanez. The temptation to back-date documents and to “fill in the blanks” may be too great for some to resist. Prosecutors and regulators will likely be looking for just such situations as they attempt to make cases.

What the court in Ibanez really ruled is that the banks need to strictly comply with the laws already on the books in proceeding with foreclosures, and in light of the court’s candid opinion, and harsh concurrence by Justice Robert J. Cordy, banks would do well to ensure that they have their ducks in line. Banks would also be wise to educate their staff on Ibanez and how not to react to it.

But when all is said and done, however, what Ibanez may ultimately have done is provided the impetus for legislators, regulators, and prosecutors to change the way foreclosures proceed in Massachusetts, and possibly all over the country, in creating new requirements for banks, and courts, far beyond those at play in Ibanez.

My Analysis of the Case

Winners: Distressed homeowners facing foreclosure
Losers: Foreclosing lenders, people who purchased foreclosed homes with this type of title defect, foreclosure attorneys, and title insurance companies.
Despite pleas from innocent buyers of foreclosed properties and my own predictions, the decision was applied retroactively, so this will hurt Massachusetts homeowners who bought defective foreclosure properties.
If you own a foreclosed home with an “Ibanez” title issue, I’m afraid to say that you do not own your home anymore. The previous owner who was foreclosed upon owns it again. This is a mess.
The opinion is a scathing indictment of the securitized mortgage lending system and its non-compliance with Massachusetts foreclosure law. Justice Cordy, a former big firm corporate lawyer, chastised lenders and their Wall Street lawyers for “the utter carelessness with which the plaintiff banks documented the titles to their assets.”
If you purchased a foreclosure property with an “Ibanez” title defect, and you do not have title insurance, you are in trouble. You may not be able to sell or refinance your home for quite a long time, if ever. Recourse would be against the foreclosing banks, the foreclosing attorneys. Or you could attempt to get a deed from the previous owner. Re-doing the original foreclosure is also an option but with complications.
If you purchased a foreclosure property and you have an owner’s title insurance policy, contact the title company right away.
The decision carved out some room so that mortgages with compliant securitization documents may be able to survive the ruling. This will shake out in the months to come. A major problem with this case was that the lenders weren’t able to produce the schedules of the securitization documents showing that the two mortgages in question were part of the securitization pool. Why, I have no idea.
The decision opens the door for foreclosing lenders to prove ownership with proper securitized documents. There will be further litigation on this. Furthermore, since the Land Court’s decision in 2009, many lenders have already re-done foreclosures and title insurance companies have taken other steps to cure the title defects.
We don’t know how other state court’s will react to this ruling. The SJC is one of the most well respected state supreme courts in the country. This decision was well-reasoned and I believe correct given that the lenders couldn’t even produce any admissible evidence they held the mortgages. The ruling will certainly be followed in states (such as California) operating under a non-judicial foreclosure system such as Massachusetts.
Watch for class actions against foreclosing lenders, the attorneys who drafted the securitization loan documents and foreclosing attorneys. Investors of mortgage backed securities (MBS) will also be exploring their legal options against the trusts and servicers of the mortgage pools.
The banking sector has already dropped some 5% today (1.7.11), showing that this ruling has sufficiently spooked investors.

For more info on how you can use the Valid imperfected Securitization arguements such as the ones used in this case to effectively and successfully challenge and win your Foreclosure Defense, please visit http://www.fightforeclosure.net

Litigating Trial Loan Modification Against Your Bank or Lender

17 Friday May 2013

Posted by BNG in Banks and Lenders, Foreclosure Defense, Litigation Strategies, Loan Modification, Your Legal Rights

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Tags

Foreclosure, HAMP, Home Affordable Modification Program, Loan servicing, Mortgage loan, Mortgage modification, United States, Wells Fargo

If you find yourself wondering whether you can litigate your Trial Loan Modification which your Bank/Lender failed to make permanent, you are not alone. Many homeowners all across the nation found themselves in similar situation. This question has arisen many times lately, and still we do not have a confirmed answer. But nonetheless it can be litigated because the trial loan modification is afterall a contract, and every contract can be enforced. This goes back to the first year law school class of contract. It means offer, acceptance, consideration and execution. Here, it has all the elements of contract formation. All the judicial remedies of a contract are available in this litigation also. Why not? A lender cannot be compelled to modify a contract unless they had taken governmental bailout money and there are federal guidelines about foreclosure and the requirements one has to meet. We are talking about folks who had gotten trial loan modification and the banks is reneging on it. Here, someone signed, accepted the trial loan modification and sent quite few payments in executing the offer, and did their part of the bargain.

In the recent past, NCLS has brought four class action suits on behalf of Massachusetts residents to challenge the failure of Wells Fargo Bank, Bank of America , J.P. Morgan Chase Bank and IndyMac Mortgage Servicers/OneWest Bank to honor their agreements with borrowers to modify mortgages and prevent foreclosures under the United States Treasury’s Home Affordable Modification Program (”HAMP”). The complaints are filed with the United States District Court for the District of Massachusetts and assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing and promissory estoppel under Massachusetts common law arising from the financial institution’s alleged failure to keep its promises to modify eligible loans to prevent foreclosures against homeowners who have lived up to their end of the bargain as required by HAMP.

Here are some of the complaints filed for such litigation.

Complaint NO. 1
http://www.nclc.org/issues/cocounseling/content/hamp-BosqueWFComplaint.pdf

Complaint No. 2
http://www.nclc.org/issues/cocounseling/content/hamp-Johnson-BOA-Complaint.pdf
Complaint No. 4
http://www.nclc.org/issues/cocounseling/content/hamp-DurmicJPMorganChase-Complaint.pdf

Complaint No. 4
http://www.nclc.org/issues/cocounseling/content/hamp-Reyes-OneWest-Complaint.pdf

If you are not getting your permanent loan modification with your Bank or Lender, you can contact your congressman or regulatory agencies using the sample letter below.

Regulatory Agency

123 Someplace

Some Where In USA

Dear Regulatory Agency

I am writing to you as a homeowner in foreclosure and wish to draw your attention to issues regarding mortgage loan modification, including the Making Homes Affordable program. The prevailing loan modification policies imposed by government entities and loan servicers expose homeowners to substantial risks in a system designed to generate additional profits to loan servicers and others who reap financial rewards in the foreclosure process, at the expense of consumers.

1. The prohibition against partial payments imposed by many loan servicers quickly forces many homeowners into expensive and unnecessary foreclosure proceedings. A loan servicer may decline a mortgage payment check that is $20 less than the full amount due, with full knowledge – and presumably hope – that it may soon result in thousands of extra dollars in profit should the homeowner later be forced into foreclosure. Such policies are calculated to increase profits to loan servicers, their attorneys and other entities that benefit in the foreclosure process.
2. The notorious “Three Month Trial Period” offered by many loan servicers is fraught with many jeopardizing the homeowners who accept such offers.
a. As loan servicers repeatedly extend the trial period, three months may become a year or two.
b. More than half of all trial periods are cancelled by the loan servicer, most of the time despite the fact the homeowner made timely payments.
c. During this period, foreclosure proceedings remain pending, which permits loan servicers to demand an auction date for the sale of the house, even in cases where the homeowner has fully complied with the Trial Period.
d. No warranty, pledge or agreement is made by the loan servicer upon initiation of the trial period. Servicers are under no obligation to do anything other than re-review the loan modification application. This provides ample incentive to loan servicers to prolong the trial period and revive foreclosure proceedings, after gaining many thousands more dollars from hapless homeowners who were led to believe the trial period would end in a timely manner, including an approval of their loan modification.
e. No details are revealed in advance to homeowners by loan servicers regarding the vaguely-possible, future successful loan modification. Many distressed homeowners have completed the trial period only to receive a loan modification that is financially questionable, such as an ARM mortgage.
f. Further, many loan servicers are misrepresenting the “Three Month Trial” to homeowners as a HAMP product, when in fact the only loan modification available to such homeowners is one of the loan servicer’s own creation and often designed to maximize the potential for default and thus, servicer profits.
3. In many cases, homeowners are awaiting loan modification review while simultaneously in foreclosure. As loan servicers are notoriously slow to both review such applications and respond to homeowner inquiries, auction dates are often set before the loan modification application has been approved or denied. No auction date should be set before a loan modification application has been approved or denied.
4. Many loan servicers require that homeowners not attempt to sell their homes while undergoing a loan modification review. For homeowners already in foreclosure, this policy places them significantly at risk of losing their homes and/or equity in the event the loan modification is denied or has not been approved before the auction date imposed by a court.
a. Homeowners participating in the trial period are also prohibited from placing their homes on the market, which as described above can be a lengthy process, again exposing them to the risk of losing their homes and/or equity.
b. When facing or defending themselves in a foreclosure or while undergoing the often lengthy process of loan modification, a homeowner’s right to sell the property themselves must not be infringed upon in order to generate additional profit to loan servicers. These policies effectively remove a distressed homeowner’s last recourse to mitigate their losses.

In summary, distressed homeowners are inadequately protected under these predatory policies. To more fairly balance the needs of loan servicers and the protection of homeowners, these policies should be implemented and enforced by the appropriate regulatory agencies:

1. Loan servicers should accept and properly apply partial payments of overdue mortgage accounts.
2. Efforts must be made and enforced to ensure that homeowners are able to reliably reach and/or obtain responses to their inquiries of loan servicers.
3. Loan modifications must be reviewed in a timely manner, preferably with a pre-defined time limit.
4. “Three Month Trial Periods” should be accurately identified to homeowners as to whether or not the trial period is related to a HAMP loan modification or the loan servicer’s in-house loan modification.
5. “Three Month Trial Periods” should not be extended, except upon homeowner’s request.
6. Pending foreclosure cases should be promptly dismissed upon the initiation of any loan modification “Trial Period.”
7. Truth-in-Lending Disclosures and all other such disclosures and settlement statements currently required of mortgage lenders should be provided to homeowners before the initiation of any “Trial Period.” This would allow homeowners to make an informed decision regarding the financial suitability of the future loan modification, while still allowing loan servicers to rescind such agreements upon the failure of the homeowner to successfully complete the “Trial Period.”
8. In a pending foreclosure proceeding, no auction date should be set before a loan modification application has been approved or denied.
9. The right of a homeowner to sell the property should not be restricted during foreclosure or loan modification review.
10. All regulations and laws applying to consumer loans, such as RESPA and TILA, must also fairly apply to loan modifications. If first mortgage and refinanced mortgages are subject to such regulations, why are loan modifications not?

Please look into this matter at your earliest convenience.

Thank you in advance for your prompt attention to this important urgent matter.

Sincerely,

John/Jane Doe

After contacting the regulatory agencies or your congressman, if you are not getting the attention or permanent loan modification you feel you deserve, you can visit www.fightforeclosure.net to get your foreclosure litigation package and effectively pursue your next Cause of Action in order to get your Trial Loan Modification Offer, permanently modified.

Loan Modification Formula For Wells Fargo Bank

15 Wednesday May 2013

Posted by BNG in Loan Modification

≈ 1 Comment

Tags

Bank of America, Eric Schneiderman, Finance, JPMorgan Chase, Mortgage loan, Mortgage modification, Payment, Wells Fargo

The Wells Fargo loan modification formula is utilized in their federal loan modification program which is designed to provide all qualifying homeowners with long-term financial relief through more affordable home loan payments. Considering the fact that this initiative is essentially funded by your tax dollars, you might as well make use of it, and loan modification represents one of the most effective ways of saving your home from foreclosure if you’re facing overwhelming financial hardships.

The objective of the loan modification formula

The relevant formula related to debt ratio and target payment is one that has been set by the Treasury. The objective is to bring about a modified mortgage payment that equates to 31% of your gross monthly earnings. This projected payment is what is referred to as your target payment. There are established ways of arriving at the 31% mortgage payment. These include lowering the rate of the mortgage to as little as 2%, prolonging the term of the mortgage to as much as 40 years, or at Wells Fargo’s discretion, writing off a portion of the outstanding principle on the mortgage. You stand a good chance of being approved for a loan modification if the desired target payment in your case can be achieved through one of these means. Your other debts and expenditures also need to be taken into consideration, and you will need to manage your financial situation in such a way so that you have the suitable amount of disposable income available to you.

The significance of Target Payments

According to stipulations of the federal HAMP program, an affordable mortgage payment is designated to be between 31-38% of the relevant gross monthly income. In this context, a mortgage payment must be thought of as being made up of a combination of principal, taxes, association costs, and insurance.

The significance of Debt-to-Income Ratios

These ratios play a pivotal role in the loan modification process because of the fact that approval is significantly based on financial qualification. Wells Fargo will use your DTI ratio as a guide when reaching an understanding of your ability to make good on repaying your loan. In order for the risk of default to be minimized as far as possible, these ratios must ideally fall within set limits. This is meant to safeguard you as the homeowner from being overwhelmed by your financial obligations.

Cashflow

Cash flow is part of the Wells Fargo approval formula and tells the bank if you are truly in a financial hardship. Ideally, after paying all of your monthly bills you should be barely making it or even in a negative cash flow-BUT after the loan mod you need to show that you will have at least $250 left over each month. Use the Loan Mod Calculator to fine tune your expenses so that your results show you a PASS for these two important categories.

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Loan Modification Formula For Wells Fargo Bank

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