FORENSIC LOAN ANALYSIS - Fraudstoppers
LOAN TRANSACTION ANALYSIS
BORROWER
THERESA ROYAL
PROPERTY DESCRIPTION
12305 Quilt Patch Lane
Bowie, mARYLAND
DISCLAIMER
Mortgage Fraud Examiners is not a law firm, and makes no representations and warranties of any kind and assumes no liability whatsoever for any findings, including incorrect findings arising from inaccurate data, improper classification of data, or erroneous interpretations of the loan data submitted for review. Any comments or conclusions contained in this analysis are not intended to provide legal advice. As legal advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of competent counsel. Moreover, this analysis is only a tool for attorneys to evaluate foreclosure defenses, and is for the internal use of legal counsel. Therefore, it is not to be used as an exhibit, or for evidentiary purposes.
© 2007-2018 MORTGAGE FRAUD EXAMINERS
Table of Contents
LOAN INFORMATION 3
MISCONDUCT IDENTIFIED & POSSIBLE REMEDIES 3
SUMMARY OF SALIENT FACTS 4
UNCONSCIONABILITY & PREDATORY LOANS 21
UNCONSCIONABILITY 21
PREDATORY LENDING 21
STATED INCOME/ASSET--NO INCOME/ASSET 25
TRUTH IN LENDING ACT AND REGULATION Z 27
RESCISSION UNDER TILA 29
REAL ESTATE SETTLEMENT PROCEDURES ACT & REGULATION X 30
EQUAL CREDIT OPPORTUNITY ACT & REGULATION B 31
FAIR HOUSING ACT 33
FAIR DEBT COLLECTION PRACTICES ACT 34
CONDITIONS PRECEDENT 36
ENFORCEMENT RIGHTS OF NOTES 38
HOLDER IN DUE COURSE 42
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS 43
CREDIT REPUTATION DAMAGES 44
ACTUAL INCREASED OUT-OF-POCKET COSTS 44
CREDIT CAPAPCITY 45
CREDIT EXPECTANCY 45
PROCEDURES FOR RESOLVING MORTGAGE ISSUES 46
NOTICE OF GRIEVANCE AND ISSUE ESCALATION 46
LEGAL AID AND SELF HELP LEGAL AID 47
NOTES ON HIRING LEGAL COUNSEL 47
FREE SERVICES 48
SAMPLE GRIEVANCE LETTER 49
Loan Information
Single Family Residence
That Closed on: December 14, 2005
Loan Amount: $309,600 1st and 79,400 2nd
Loan Term: 360 Months 1st 180 month second
Loan Type: 3 Year/6 Mo IO LIBOR ARM 1st, 30 due in 15 balloon 2nd
Loan Position: First and second Interest Rate: 6.00% 1st, 11.35%2nd
Rate Type: Variable, Fixed
Mortgage Broker: Town and Country Mortgage
Lender: Countrywide Home Loans, Inc. DBA America’s Wholesale Lender
Underwritten As: Primary Residence Purchase Construction to Permanent: Refinance: Cash Out to Borrower:
Prepayment Penalty Details: N/A Interest Only Option: 3 Years 1st only
For Adjustable Rate Mortgages (ARMs): 1st Only
Time Until First Adjustment: 3 Years
Frequency of Adjustments: 6 Months Freq. of Payment Changes: 6 Months
Index Used for Rate: 6-Month LIBOR, WSJ, 45 day lookback Added to Margin of: 5.8%
Max Rate at 1st Adjustment: 8.3%
Max Rate Change After 1st Adjustment: 1.5% Max Rate (lifetime cap): 13.8%
Floor Rate 6.8%
MISCONDUCT IDENTIFIED & Possible REMEDIES
1. Negligence/Fraud in underwriting by Lender
2. Various violations of TILA and ECOA with regards to disclosures
3. Possible Appraisal Fraud
4. Violation of ECOA with regards to discriminatory pricing and policies.
SUMMARY OF SALIENT FACTS
The scope of MFE’s involvement is to review the provided mortgage(s) transaction(s) documents for breaches, errors, tortious conduct, state/federal statutory/regulatory compliance, predatory lending, contract breaches, fraud, and any other serious problems, which MFE observes.
Material relating to how these and other references may create civil liability or be used defensively against a foreclosure can be found under their own heading in the Table of Contents. MFE highly recommends reading this reference material for those unfamiliar with topics discussed.
1. The files reviewed for errors, predatory lending, contract breaches, and fraud contained the following documents and folders of related documents:
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2. In December 2005, Theresa Royal purchased 12305 Quilt Patch Lane, Bowie MD 20720, with legal description Lot 92, Block K, Plat 41 of Northridge, as per Plat Book NLP 162 at Plat 89 from seller Laurie Putney.
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3. The purchase of $387,000 was funded by a $309,600 first mortgage, $77,400 second mortgage, $7,000 seller credit, and $12,470.87 from Royal in earnest money or deposit and cash at closing.
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4. This purchase price was $87,000 or 29% higher than the prior sale earlier that year to Laurie Putney, with the tax assessor not showing any difference in improvements or land value from January 2005 through July 2007.
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5. The appraisal for the purchase is missing key pages including the comparable sales grid and statement of value and starts on page 6 of documents provided to MFE.
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6. Three comparable pictures that do show up are 7923 Quill Point Drive, 12312 Quarterback Court, and 8105 Quill Point Drive.
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7. 7923 Quill Point Drive was a sale at around the same time.
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8. 12312 Quarterback Lane last sale was in 2007 for $379,000 as per Zillow and tax records.
9. However, Prince George’s County tax assessor has the last sale deed on 8105 Quill Point Drive in 1991.
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10. In addition, as per questionnaire the second mortgage on the property of $79,400 appears to have been stripped and written of in a 2006 bankruptcy as a wholly unsecured lien a year later, even though the average for the Metropolitan Statistical Area was close to the same value in December 2006 at the petition date as it was in December 2005 (although Bowie as a single city and does not necessary follow the multistate average).
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11. Federal Housing Finance Agency data for the MSA:
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12. The removal of the appraisal comparable sales grid and other pages, combined with a lack of sale deed history on comparable #3, combine with a 29% increase in one year which was twice the average increase of the Metropolitan Statistical Area (which as an average is not entirely accurate as to a single location), all are indicators possible appraisal fraud. The ability to strip off the second as a wholly unsecured lien a year later when the average market was the same value as the year before (although Bowie as an individual city and neighborhood has its own market trends) is also an indicator of appraisal fraud.
13. However, the appraisal is too incomplete to draw definite conclusions. A copy of the appraisal was requested by MFE multiple times for review, but was never provided.
14. An appraisal copy or Equal Credit Opportunity Act (ECOA) Appraisal Disclosure stating where a copy of the appraisal can be obtained is required to be delivered. Under ECOA and its implementation Regulation B 12 C.F.R. 1002.14.
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15. It is unclear why the appraisal is incomplete, and no ECOA Appraisal Disclosure appears. Countrywide Home Loans at the time did have an automatic disclosure mail-out system, and the broker may have also delivered the disclosure, but it does not appear in documents sent to MFE. The lack of delivery of the full appraisal or an ECOA Appraisal Disclosure may be reviewed with an attorney in any defensive action for violation of ECOA and its implementation Regulation B, including defense against a proof of claim in bankruptcy.
16. At the time of loan closing, Royal had an income of $5,000 per month as per the questionnaire. The loan application does not appear to verify income and payment figures, so they were taken as appearing in other places, and may be inaccurate.
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17. The homeowner’s insurance policy as per the HUD-1 Settlement Statement appears to be $94.57 per month.
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18. Property tax as per the 2006 tax bill was $4260.80 annually, or $355.07 per month.
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19. The second mortgage had monthly payments of $737.10 per month until the balloon was due.
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20. The first mortgage had interest-only payments for three years of $1754.40.
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21. This payment was expected to adjust based on the 6 Month LIBOR index, which using a 45-day lookback had a value of 4.447% on October 31, 2005. Added to the margin of 5.8%, the expected rate after adjustments would have been 10.25% which due to caps in adjustment would have been reached in year four. Fully amortized, this would have produced a principle and interest payment of $2844.75 per month on year four.
22. Non-housing and credit related payment could not be found, and is normally pulled from the Universal Residential Loan Application, which was requested by MFE multiple times for review, but was never provided. However, the housing payment alone including mortgage payments, taxes, and insurance started at $2941.14 per month, and was scheduled to increase to $4031.49 on year four.
23. Using $5000 monthly income as given by questionnaire, the total debt ratio started at 59% and was scheduled to increase to 81% at the end of year four.
24. Using the final rule of the Consumer Financial Protection Bureau in 2013 implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act, a 43% total debt ratio as calculated from the highest payment as expected over 5 years is a general safeguard guideline for affordability.
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25. Based on the 43% debt ratio as calculated by the CFPB rule above, as well as conventional conforming guidelines and FHA guidelines in 2005, it was well known by both the brokers and lender that Royal’s 59% housing debt ratio that climbs to 81% was not affordable. The likely total debt ratio may have been even higher, depending on non-housing debt payments.
26. Without a loan application, it is unclear if fraudulent stated income was used to qualify Royal for the loan. Commonly, such a stated income is reverse engineered from the payments by the broker, with the practice encouraged by Countrywide as lender.
27. The loan application, and its implications, should be obtained and reviewed with an attorney for fraudulent stated income. In the alternative, if the lender knew and used Royal’s actual income, and gave her a loan that would ultimately increase to be an unaffordable 81% housing debt ratio in 4 years, this should be reviewed with an attorney for negligence and lack of due care.
28. In addition, no Truth in Lending Disclosure for the first mortgage appears among documents sent to MFE. This should be reviewed with an attorney for failing to provide the federal Truth in Lending Act (TILA) disclosure in a form for Royal to keep in any federal court, including bankruptcy court, in any defensive action. TILA and its implementation Regulation Z 12 C.F.R. § 1026.16
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29. While various letters and the questionnaire indicate that default was due to being unpaid in contracts, and a car accident, a major contributing factor was simply that the debt ratio was too high since too much money was loaned, so that when income was reduced, default occurred.
30. As per questionnaire, Royal has minority status.
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31. As per the case U.S. v. Countrywide Financial, which resulted in a $335M settlement, Countrywide did have racist policies, which enabled mortgage brokers and Countrywide originators to place black and Hispanic borrowers in inferior loans at the originators discretion for higher profits.
32. As per the questionnaire, Royal had 620 credit midscore, which would have normally qualified for full income documentation (43% debt ratio or less) 30 Year fixed FHA-insured superior financing.
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33. As per study by the Federal Reserve Bank of Philadelphia, 37% of FHA financing in 2005 was to borrowers with less than 620 credit.
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34. Royal requested such financing, but the broker appears to have used subprime financing instead in order to qualify Royal for a larger loan amount than she could afford.
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35. This should be reviewed with an attorney in any defensive action for violation of ECOA and its implementation Regulation B which prohibits discrimination based on race. 12 C.F.R. § 1002.4
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36. This discrimination by a lack of broker oversight appears to have happened here as well, not only by the selection of loan program and amount, but also by allowing the broker to charge an origination fee when Countrywide originated the loan, and paying the broker for a service it did not provide.
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37. Payment of settlement services not provided is regulated by the Real Estate Settlement Procedures Act (RESPA) and its implementation Regulation X 2 C.F.R. § 1024.14.
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38. Brokers do not both broker and originate the same loan. This should be reviewed with an attorney for violation of RESPA in any defensive action. In addition, this and any other grievance may be mailed or otherwise delivered to the servicer.
39. The Note and Deed of Trust are of even date, December 14, 2005, of the same loan amount, $309,600, and the Exhibit A Legal description for the Deed of Trust matches the Deed as Lot 92, Block K, Plat 41 of Northridge. No obvious errors were observed on the face of either signed document.
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UNCONSCIONABILITY & PREDATORY LOANS
UNCONSCIONABILITY
Unconscionability is the absence of meaningful choice for one of the contracting parties, together with contract terms that are unreasonably favorable to the other party.[1]
In determining reasonableness or fairness, the primary concern is the circumstances that existed at the time the contract was formed.[2] Unfair practices often create a legal cause of action under both local state and federal Unfair and Deceptive Practices Acts, see 15 USC § 45, which may be explored with an attorney for use in an offensive action such as a lawsuit or a defensive action in defense of foreclosure or against a proof of claim in Bankruptcy. Also see FTC Act Section 5 analysis by the FTC. Also see story of Dorothy Davis.
Unconscionability almost rises to the level of fraud or contractual capacity (unsound mind), but does not quite get there.
To spot unconscionability, one must look at the overall transaction between the parties to determine whether it rises to the level necessary where it becomes evident to the court action must be taken to prevent an injustice from continuing.
The elements of unconscionability are generally:[3]
1) The absence of meaningful choice for one of the contracting parties,
2) Together with contract terms that are unreasonably favorable to the other party.
a. Price alone will not constitute unconscionability.
b. To establish unconscionability, the court will look to see if both substantive and procedural unconscionability were present at the time the contract was formed.[4]
i. Substantive Unconscionability deals with unjust or “one-sided” contracts: unfairly oppressive to one of the parties.
ii. Procedural Unconscionability is concerned with “unfair surprise,” like fine print clauses or mistakes or ignorance of important facts.
iii. See the factors section on how to establish each.
PREDATORY LENDING
Predatory lending is a term that encompasses many different types of abusive actions by loan originators to secure loans. There are no set elements to a predatory lending claim. Instead, many individual factors come together to paint a picture of lending abuse. Each individual component may be legal, but taken together as a whole the loan is predatory. Predatory lending practices often create a legal cause of action under local state unfair trade practices laws, as well as federal unfair practices 15 USC § 45, which may be explored with an attorney for use in an offensive action such as a lawsuit or a defensive action in defense of foreclosure or against a proof of claim in Bankruptcy. Also see FTC Act Section 5 analysis by the FTC. Also see story of Dorothy Davis.
The Office of the Comptroller of the Currency (OCC) issued a rule in 2003 cautioning banks under its purview to be cautious about accepting loans originated by brokers that may be predatory.[5] The OCC warned banks that they might be subject to liability for disregarding banking controls.
The OCC described the heart of predatory lending as “a disregard of basic principles of loan underwriting,” indicating a variety of other marketing practices may make a loan predatory. It includes a list of problematic lending practices, which may indicate predatory behavior.[6]
The OCC also directed banks to consider creating policies to identify whether loans made involve features associated with predatory lending.[7]
In addition to this list, if the loan contains violations of other laws, it would help establish the loan is predatory. Each minor and major violation of federal law begins to paint a picture of abuse. If several different violations of the law are present, then it may be wise to include predatory lending as a defense.
a. The loan appears unconscionable, in that at 81% debt ratio after four years it would have likely been impossible for Royal to perform.
1. The following are predatory factors.
a. The following are procedural unconscionability factors. You should evaluate all factors for this loan. Those that are evident from the documents and questionnaire are bolded here:
i. The education, intelligence, business acumen and experience of the borrower.
ii. The age of the borrower. [8]
iii. The inability of the borrower to understand or read the language of the contract. (Such as Spanish speakers.)
iv. Any disabilities the borrower may have, especially those that may impair the ability for the borrower to understand the contract’s terms.
v. The sales process being conducted in a language other than the language of the contract. (Sale in French, papers are presented in English.)
vi. The closing conducted in English without an interpreter present.
vii. The relative bargaining power of the parties.
viii. Adverse construction of the language of the contract.
ix. Manipulation of the rules.
x. The manner in which the contract was formed. Lack of disclosures at closing.
xi. Whether the terms of the contract were possible.
xii. Whether the seller or lender knowingly took advantage of the consumer’s inability to protect his or her interests.
xiii. Oppressive terms.
xiv. Last minute hikes in the terms.
xv. Failure to provide accurate initial Good Faith Estimate or disclosures.
xvi. Refinance deception with respect to promising lower payments but actually:
• New payments don’t include taxes or insurance.
• Number of new payments much larger.
• Total period of repayment, thus total payments greater interest payments.
xvii. If advertisements run afoul of federal guidelines on deceptive statements.
2. The following are substantive unconscionability factors. You should evaluate all factors for this loan. Those that are evident from the documents and questionnaire are bolded here:
i. Relative fairness of the obligations.
ii. Oppressive terms.
iii. Overall imbalance of the obligations and rights imposed by the contract.
iv. Significant price disparities.
v. Inability of the consumer to receive substantial benefits from the transaction.
vi. Gross disparity between other loans on the market that like situated consumers could obtain, versus the one this consumer entered into. Loan amount was much larger than normal due to fraud.
vii. Not offering to qualify the homeowner for lower mortgage terms at a lower cost instead of going “stated” income.
viii. The income differences between the application form (Document No. 1003) and the tax returns of the borrower may be significant.
ix. The lender may have filled out the application, not the borrower.
x. Using a No Income No Asset (NINA), Stated Income Stated Asset (SISA), or like program instead of qualifying the borrower at the payment amount he or she could afford.
xi. Using an adjustable rate product when a fixed rate product was available, especially if used in conjunction with a NINA or SISA program to loan more money. (Remember, brokers are paid on loan sizes, which is an incentive to secure the biggest loan possible).
xii. The loan has a negative amortization schedule (loan size increases over time).
xiii. The failure of the lender to carefully evaluate the repayment capabilities of the borrower.
3. The following are predatory lending factors as described. You should evaluate all factors for this loan. Those that are evident from the documents and questionnaire are bolded here:
a. “Packing” of excessive and sometimes “hidden” fees in the amount financed;
b. Using loan terms or structures – such as negative amortization – to make it more difficult or impossible for borrowers to reduce or repay their indebtedness;
c. Using balloon payments to conceal the true burden of the financing and to force borrowers into costly refinancing transactions or foreclosures;
d. Targeting inappropriate or excessively expensive credit products to older borrowers,[9] to persons who are not financially sophisticated or who may be otherwise vulnerable to abusive practices, and to persons who could qualify for mainstream credit products and terms;
e. Inadequate disclosure of the true costs, risks and, where necessary, appropriateness to the borrower of loan transactions;
f. The use of mandatory arbitration clauses.
g. Frequent, sequential refinancing;
h. Rates higher than what the borrower qualifies for.
i. Refinancing’s of special subsidized mortgages that contain terms favorable to the borrower;
j. Single-premium credit life insurance or similar products;
k. Negative amortization;
l. Balloon payments in short-term transactions; (2nd)
m. Prepayment penalties that are not limited to the early years of a loan;
n. Financing points, fees, penalties, and other charges;
o. Interest rate increases upon default;
p. Making loans subject to HOEPA.
STATED INCOME/ASSET--NO INCOME/ASSET
“Stated Income Stated Asset” (SISA) and “No Income No Asset” (NINA) loans are loans whereby the income or assets are not verified by the lender (or verification is minimal). As the names imply, “stated” income means the borrower, states his or her income to the bank and the bank believes him. These loans were originally designed to help tipped workers and self-employed individuals qualify for mortgages without using tax returns or other customary financial verification methods. However, the loans became a source of abuse when originators began using SISA and NINA to approve borrowers with little actual ability to substantiate their income. Additionally, when borrowers want bigger homes, SISA and NINA could be used to secure loan approvals for loans otherwise turned-down. SISA loans usually have an employer stated on the application and an income amount stated. Assets in SISA loans are also stated, whether or not the assets actually exist. (In practice, assets are usually verified, even if income is not).
Whereas SISA loans required the employer and income be stated on the application, NINA loans were left blank. The employer, income, and asset sections contained no information during the underwriting process.
SISA and NINA loans were very common in the mortgage industry between about 2000-2007. These loans are not per-se illegal, but the federal government issued a “final guidance” letter on October 4, 2006 outlining actions bank holding companies and insured financial institutions should take to ensure borrower income and assets were properly reviewed.[10] The letter was jointly issued by the Department of Treasury Office of the Comptroller of the Currency (OCC), Federal Reserve System (FRS), Federal Deposit Insurance Corporation (FDIC), Department of the Treasury Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA).
The revisions to TILA that passed in July 2008 eliminate sub-prime lenders ability to use SISA and NINA loan programs. TILA now requires all loans that have an interest rate over 1.5% of the prime rate index (effectively all sub-prime loans) have verified income and assets.[11]
When brought up by lenders, stated income fraud is breach of the borrower’s agreement to provide accurate information as part of the mortgage contract process. If this is brought up, you may look to see if the lender reasonably relied on the stated income and suffered damages, such as verifying if the lender had a process of reviewing stated income loans for accuracy. Most lenders required signing of the IRS 4506 or 4506T at closing, but never relied or had a process to execute or review the tax information.[12]
1. If the borrower clearly had no way of paying back a loan and the loan was SISA or NINA, look to the following defenses: fraud, unconscionability, misrepresentation, and negligence. Additionally, SISA and NINA loans that adversely affected the borrower would be factors in a predatory lending defense. Fraud here can also implicate bank fraud, wire fraud, and mail fraud, giving rise to RICO claims. This appears to be the case here, although there is a question of fact as to how borrower’s income structure existed at the time of origination.
2. See Salient Facts as to income analysis. It is unclear without a loan application how the lender justified the loan amount.
TRUTH IN LENDING ACT AND REGULATION Z
The Truth in Lending Act (TILA 15 USC § 1601 et seq.) is implemented by the Board of Governors of the Federal Reserve System’s Regulation Z (12 CFR Part 226). A principal purpose of TILA is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. It gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling. Regulation Z also prohibits specific acts and practices in connection with an extension of credit secured by a consumer's dwelling.
Violations of TILA and its implementation Regulation Z give rise to strict liability, so there is no “technical” violation of TILA that does not create liability.[13] One significant remedy under TILA is rescission. Rescission under TILA is made available for specific errors, within a time frame of three years, and only for non-purchase owner occupant refinances.
A creditor who fails to comply with any requirement imposed under TILA is liable in an amount equal to the sum of the following: 1) any actual damage sustained by such a person as a result of the failure, and 2) damages not less than $200 or greater than $2,000 if the home loan is not a home equity loan.[14] Recovery is not cumulative, so the borrower is only able to recover for one set of damages (even if there are multiple disclosure failures).[15]
The statute of limitations to prosecute a regular TILA violation is one year. If the loan goes into foreclosure, a TILA violation may be used as offset against the judgment sought. This may reduce the amount of any deficiency judgment or default claim. See 15 U.S.C. § 1640 for civil liability under TILA and its use under section (k) Defense to Foreclosure. See 15 U.S.C. § 1640 for civil liability under TILA and its use under section (k) Defense to Foreclosure.
When ownership of a mortgage is sold or otherwise transferred, 15 USC § 1641 provides liability to assignees of mortgages for TILA violations of previous owners, and requires a disclosure to be provided to the borrower identifying the new owner.
Regulation Z was amended[16] to apply to applications October 1, 2009 by adding 12 C.F.R. 226.35 to include special protections for higher-priced loans. The threshold for a higher price loan was set above the average Freddie Mac Primary Mortgage Market Survey rate by 1.5% for first and 3.5% for subordinate lien mortgages. HELOCs, reverse mortgage, and construction loans are exempted from this section. Effective April 1, 2011, a threshold of 2.5% applies to Jumbo loan amounts exceeding the maximum conforming loan Freddie Mac loan limit.
Maine, Connecticut, Massachusetts, Oklahoma, and Wyoming all have state versions of the Truth in Lending Act[17]. State Truth in Lending requirements generally only apply to state licensed and state regulated institutions, as they are generally preempted by federal regulation for federally regulated institutions.
1. See Salient Facts as to TILA.
RESCISSION UNDER TILA
In a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction. See 15 USC § 1635 and 12 C.F.R. § 1026.23.
Rescission means the entire mortgage transaction is undone. When a homeowner rescinds the mortgage transaction, the security interest-giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.
The consumer[18] cannot be required to pay any amount in the form of money or property either to the creditor or to a third party as part of the credit transaction. Any amounts of this nature already paid by the consumer must be refunded. "Any amount" includes finance charges already accrued, as well as other charges, such as broker fees, application and commitment fees, or fees for a title search or appraisal, whether paid to the creditor, paid directly to a third party, or passed on from the creditor to the third party. It is irrelevant that these amounts may not represent profit to the creditor.[19]
Notwithstanding the above procedures, a court may modify them. However a court's modification of those procedures does not affect a consumer's substantive right to rescind and to have the loan amount adjusted accordingly. If the loan has funded, courts may require the person seeking rescission to allege they will tender, are capable of tendering, or that such equitable circumstances exist that conditioning rescission on any tender would be inappropriate.[20]
Note: While rescission is available by federal law, state common law may also provide a right to rescind in some cases. For example, most states permit judges to ratify contracts, strike offending provisions, or rescind contracts when they are unconscionable (see the Predatory Lending section). Each state treats common law defenses and rescission a little differently. While this report covers some common law state defenses, an exhaustive review of state laws is not possible here so local research may be warranted.
1. The right of TILA rescission does not apply to purchase transactions.
REAL ESTATE SETTLEMENT PROCEDURES ACT & REGULATION X
The Real Estate Settlement Procedures Act 12 USC Chapter 27 and its implementation Regulation X by HUD (The Department of Housing and Urban Development) requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. The Act also protects borrowers against certain abusive practices, such as unearned kickbacks, places limitations upon the use of escrow accounts, and requires lenders to respond to qualified written requests.
The National Affordable Housing Act of 1990 amended RESPA to require detailed disclosures concerning the transfer, sale, or assignment of mortgage servicing. It also requires disclosures for mortgage escrow accounts at closing and annually thereafter, itemizing the charges to be paid by the borrower and what is paid out of the account by the servicer.
12 USC § 2614 provides civil liability for violations of sections 2605, 2607, and 2608 of RESPA. It also provides a 3-year statute of limitations for affirmative actions in the case of § 2605, and one year in the cases of 2607 and 2608. Regardless of the statute of limitations for affirmative actions, violations of RESPA may be used as a setoff or defense in foreclosure only against the Note owner who directly committed the violation. RESPA does not have successor or vicarious liability for acts of prior note owners and servicing or other agents. [21]
Section 2605 provides for actual damages and a penalty of up to $2,000 for a pattern of noncompliance. Sections 2607 and 2608 provide liability of three times the amount of settlement services not in compliance with RESPA.
There is no liability under RESPA for failing to provide a GFE, CHARM booklet, or the HUD-1 settlement statement prior to 2010, but there is liability under TILA for these violations (subject to TILA’s one year statute of limitations on damages, except for set-off). There may be liability under RESPA for failing to provide the Notice on Servicing and for paying illegal kickbacks.
1. See Salient Facts as to RESPA.
EQUAL CREDIT OPPORTUNITY ACT & REGULATION B
The Equal Credit Opportunity Act (ECOA) 15 USC § 1691 et seq. and its implementation Regulation B makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age to the fact that all or part of the applicant’s income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The law applies to any person who, in the ordinary course of business, regularly participates in a credit decision.
When a homeowner applies for credit, the lender may not:
• Discourage you from applying or reject your application because of your race, color, religion, national origin, sex, marital status, age, or because you receive public assistance.
• Impose different terms or conditions, like a higher interest rate or higher fees, on a loan based on your race, color, religion, national origin, sex, marital status, age, or because you receive public assistance.
• Ask if you’re widowed or divorced. A creditor may use only the terms: married, unmarried, or separated.
• Ask about your marital status if you’re applying for a separate, unsecured account. A creditor may ask you to provide this information if you live in “community property” states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. A creditor in any state may ask for this information if you apply for a joint account or one secured by property.
• Ask for information about your spouse, except:
o If your spouse is applying with you;
o If your spouse will be allowed to use the account;
o If you are relying on your spouse’s income or on alimony or child support income from a former spouse;
o If you live in a community property state.
Failure to comply with the Equal Credit Opportunity Act's Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. . Once liability is proven, actual damages can be more than merely economic[22]. Compensable damages may include out-of-pocket monetary losses, injury to credit reputation and mental anguish, humiliation or embarrassment.[23] Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1% of the creditor’s net worth in class actions.[24] So, check with your state Attorney General’s office () to see if the creditor violated state equal credit opportunity laws.
If the loan goes into foreclosure, an ECOA violation can be used as offset against the judgment sought. See 12 C.F.R. § 202.16(b). Liability for punitive damages can apply only to nongovernmental entities and is limited to $10,000 in individual actions. The statute of limitations for affirmative actions was amended from two years to five years effective on applications of credit after July 21, 2011. See 15 USC § 1691e.
1. See Salient Facts.
FAIR HOUSING ACT
The Fair Housing Act, 42 U.S.C. 3601et seq. prohibits discrimination in residential real estate-related transactions based on race, color, religion, sex, handicap, familial status[25], or national origin. A common violation of this act was lenders allowing discriminatory pricing by mortgage brokers. See Countrywide’s lawsuit for discrimination here. See AIG’s consent order to settle discrimination here. Any discriminatory violation of ECOA should also be reviewed under the Fair Housing Act.
42 USC § 3613 provides a two-year statute of limitations from the last violation, and excludes periods of administrative proceeding. Reliefs, which may be granted by a court, include actual and punitive damages, injunctions, attorney fees, costs, and restraining orders.
FAIR DEBT COLLECTION PRACTICES ACT
The Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq., (FDCPA) is a law enacted to protect consumers from abusive debt collectors. It provides several layers of protection for consumers, and requires specific disclosures be made within five days of a debt collector making collections attempts.[26] It also requires the debt collector take specific steps when an account is disputed,[27] and stop collection on a debt when instructed by the consumer.[28] However, the borrower must notify the debt collector in writing before it is required to cease communication.[29]
Regular foreclosure actions by attorneys are often covered under the FDCPA.[30]
Consumers may bring lawsuits against debt collectors violating the FDCPA, and may obtain damages from the debt collector. Damages may include actual damages costs of the lawsuit, and reasonable attorney’s fees[31]. Actual damages can include compensable credit reputation damages. Such damages may accrue if, for example, the debt collector publishes incorrect information about the debtor or improperly reports the debt to the Credit Reporting Agencies (CRA). Compensable credit damage may also be present if the debt collector files a report with a CRA after being advised to stop collection actions and communications. See “Compensable Credit Damages” for additional information.
The lender may call a borrower directly to collect on its own debt, if it uses its regular corporate name and is not primarily in the collection business.[32] If the lender or servicer changes after the default, the new lender or servicer must comply with the FDCPA.[33] The law firm representing the lender must comply with the FDCPA.[34]
The FDCPA kicks in after the borrower goes into default and then contact is initiated by a new servicer, lender, or collection agency.
Any communication with the debtor after the debtor informs the debt collector in writing of his or her desire for ceasing communication is a violation of the act.[35] The debtor should keep track of each communication made by the debt collector, and use this as proof of an FDCPA violation. Reporting the debt to a CRA after a request to cease communications may also be a violation of the FDCPA.
Additionally, any attorney’s fees or other charges imposed by a debt collector that are not expressly authorized in the mortgage violate the FDCPA.[36]
However, the act does not apply to a lender who owned the loan before default.[37] If the lender did not change, and is foreclosing on its own account, then the FDCPA does not apply to it.[38]
However, if the lender changed after the default, then the new lender would need to comply with the act. [39]
Collection agencies must follow the FDCPA whether or not they obtained the debt pre-default.
A debt collector who does not comply with the FDCPA is liable in an amount equal to the sum of:[40]
• Any actual damage sustained by a violation of the act;
• Additional damages up to $1,000; and
• The costs of the action and reasonable attorney’s fees.
• Possible punitive damages.[41]
1. A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.
2. If this loan has gone into default, verify the servicer or note holder has not changed post-default by calling the current servicer. If either has changed, then the company contacting the borrower may need to comply with the Fair Debt Collection Practices Act (FDCPA) and may be liable for damages if it fails to mail the necessary disclosures to the borrower.
Note: An action brought in bad faith by the debtor may subject the debtor to the other party’s attorney’s fees.[42]
CONDITIONS PRECEDENT
A “condition precedent” is something that must occur before the lender can start foreclosure or a lawsuit for foreclosure. Usually, the Deed of Trust (or Mortgage) will have contractual prerequisites that the lender must mail the borrower, such as an acceleration/default letter and wait a certain amount of time before beginning the formal foreclosure. If FHA or VA guarantees the loan, the lender is required to follow other pre-foreclosure steps before foreclosing. These are called “conditions precedent.”
If the lender does not comply with the condition precedent, the borrower may seek relief from the courts to stop the foreclosure and require the lender start over. The lender would need to mail the notice, wait the required number of days, and then start with foreclosure again. This type of defense can be used as a stall tactic, but generally cannot defeat the entire action, unless your state has a civil rule similar to Federal Rule 41(a)(1)(B) and a court has previously dismissed the foreclosure. That rule governs multiple dismissals acting as adjudication on the merits. (Federal Rule 41(b).
1. Covenant 22 of the Deed of Trust/ Section 7 Note typically creates a conditions precedent to any foreclosure action. The condition requires 30 days’ notice before accelerating the loan and foreclosing. Local law may provide for additional conditions precedent prior to foreclosing.
2. NOTE: A mortgage lender which received TARP funds, or which voluntarily signed up for President Obama’s HAMP program, must suspend a foreclosure action while a borrower’s mortgage modification application is pending.
3. HAMP is the modification program of the Home Affordable Plan. (HARP is the refinance program.) Lenders can sign up to participate. Banks, which received TARP (Troubled Asset Relief Program) automatically “volunteered” for the HAMP program. [43]
4. The HAMP contract with the United States Treasury requires that all Treasury guidelines be followed, including this one which states that “Any foreclosure action will be temporarily suspended during the trial period, or while borrowers are considered for alternative foreclosure prevention options. “ [44]
5. Since Treasury recognizes that the MHA program will not help every at-risk homeowner or prevent all foreclosures, Treasury developed the Foreclosure Alternatives Program, an additional MHA program to help homeowners facing foreclosure.
6. Prior to resorting to foreclosure, servicers participating in HAMP must evaluate eligible borrowers to determine if a short sale is appropriate. Therefore, no foreclosure sale can occur during the agreed-upon marketing period, provided that the borrower is making good-faith efforts to sell the property. [45]
7. Section 106(c) (5) of the Housing and Urban Development Act of 1968 (the Act) (12 U.S.C. 1701x (c) (5)) provides for homeownership counseling notification by creditors to eligible homeowners.[46] The contents of the notice must:
• Notify the homeowner of the availability of any homeownership counseling offered by the creditor; and
• Provide either a list of HUD-approved nonprofit homeownership counseling organizations or the toll-free number HUD has established through which a list of such organizations may be obtained.
See:
8. Bankruptcy does not prevent loan modification under many programs, including HAMP.
Note: Many states have HAMP and HAFA type programs, so make sure to check locally.
9. FHA loans also require a face-to-face interview prior to foreclosure as per regulations by HUD.
ENFORCEMENT RIGHTS OF NOTES
The promissory note found in almost all mortgage transactions is usually a negotiable instrument.[47] Permanent Editorial Board (PEB) for the Uniform Commercial Code Article 3 of the UCC governs negotiable instrument transfers including real estate notes. [48] (Contract law governs when the notes are not negotiable.) While all 50 states have adopted portions of the UCC, not all have adopted it exactly. You will want to review your states adoption of the UCC.
§ 3-104. NEGOTIABLE INSTRUMENT.
(a) Except as provided in subsections (c) and (d), "negotiable instrument" means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:
(1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
(2) Is payable on demand or at a definite time; and
(3) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.
If the lender sells a note to another party, that party must establish it is a person holding rights to enforce the note in order to take action against the borrower, such as foreclosure and filing proof of claims in bankruptcy. To establish enforcement rights, a person must meet one of the requirements of UCC 3-301.
U.C.C. - ARTICLE 3 -§3-301.
"Person entitled to enforce" an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.
U.C.C. - ARTICLE 1 § 1-201 General Definitions.
(20) "Holder" with respect to a negotiable instrument, means the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession. "Holder" with respect to a document of title means the person in possession if the goods are deliverable to bearer or to the order of the person in possession.
To be the instrument holder, the person must have physical possession of the note plus have the note in the holder’s name, indorsed to the holder, or indorsed in blank.[49] [50] Many mortgage backed securities trusts and trustees are not holders, as they (or their agents) were never delivered an endorsed note.
Non-holders in possession who has the rights of a holder are normally servicers. Holders may give possession of the physical note alone without endorsement to servicers or agents to represent the holders on their behalf. This gives those servicers or agents non-holder in possession with rights to enforce. That person must hold proof of rightful possession.[51]
Non-holders in possession may also include parties who can prove by written agreement that they are or were entitled to indorsement, but just did not get around to it.[52] Many mortgage-backed securities do not list purchased mortgages and therefore could not prove non-holder in possession with rights of a holder. As a practical litigation matter, a previous written agreement between third parties would likely not be admissible as evidence (hearsay) without authentication from one of those parties. Evidence in the trust documents that a party with enforcement rights transferred the particular note in question into it is normally sufficient.
Section 3-309 involves enforcement of lost notes. Section 3-418(d) involves instruments not in physical possession because they were negotiated, but the negotiation was reversed due to payment failure or mistake. If the foreclosing party is seeking to enforce a lost note for any reason, review the complaint for compliance with these sections.
§ 3-201. NEGOTIATION.
(a) "Negotiation" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.
(b) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.
Negotiation is the method by which transfer of holder status occurs. Notes are normally indorsed in blank to bearer or indorsed to a specific entity. Indorsing a note in blank causes the note to give holder status to the bearer.[53] “Indorsed,” means any symbol[54] on the note that is made for the purpose of negotiating the note.[55]. The most common indorsements are stamps of executive signatures by workers with power of attorney to provide the stamp.
In some states, transfer of possession must be physical,[56] while in others constructive (intent) delivery is sufficient.[57]
Article 9 of the UCC allows transfer by an agreement or sales contract. This requires (1) value has been given for the purchase, (2) the seller to have rights in the note or to transfer rights to the note to the buyer, and (3) possession by buyer of the physical note or of receipt of sale by seller. Transfer by this method does not require endorsement of the note. Transfer of the Note under Article 9 also transfers the security instrument (mortgage or Deed of Trust).
When space runs out on the note for making indorsements, a piece of paper may be attached to the note to record further indorsements. This extra piece of paper is called an “allonge” and must be firmly attached to the note to be legally effective.[58] Each transfer should be reflected on the note as a separate Indorsement. The last page of the note should be filled with indorsements reflecting each transfer, or have an allonge firmly attached to it with whatever indorsements could not fit on the note itself.[59]
1. Review the original note and ensure that the signature on it is the original signature (not a color copy). Review any note filed with the courts and obtained a copy by Qualified Written Request for review of any negotiation.
2. The borrower can demand presentation of the actual note when the lender makes a demand to enforce it through presentment.[60] The borrower can demand to i) exhibit the note, ii) give reasonable identification and authority of right to enforce if done on behalf of another, and iii) to sign the instrument as paid when paid.[61] A note is paid to the extent that payment is made to a person entitled to enforce the instrument.[62]
3. If the bank claims the note is lost it must comply with UCC 3-309 or 3-418(d).
4. If the original note is not endorsed to the party claiming ownership, and that party is trying to enforce it as an owner, it is possible that the note was sold and securitized under Article 9. You will want to review if they file proof of ownership with any action.
5. If the original note is not endorsed to the party claiming ownership and a servicer or other party is trying to enforce it you will want to review if they file proof of the right to enforce it by UCC and power of attorney of the rightful owner, which may or may not include bylaws of the mortgage backed securities trust.
6. In a foreclosure lawsuit, this may require the restarting of the foreclosure proceeding once the paperwork is in order.[63] Therefore, if this is brought up outside of bankruptcy, it may only stall the foreclosure process.
7. In bankruptcy, this may lead to the investor or mortgage backed securities trust being unable to prove a claim and having the mortgage discharged.[64]
8. Due to different adoptions of the UCC in different states, consult your local attorney.
9. To determine if Freddie Mac owns your loan visit . To check Fannie Mae, visit .
HOLDER IN DUE COURSE
The Holder in Due Course Doctrine is often misunderstood. This doctrine does not prevent a lender from enforcing the note or foreclosing on the property owner. Instead, when the doctrine is applied, it protects the enforcing lender from certain defenses the homeowner would have against the original lender.[65] If the lender is a holder in due course, then it is safe from defenses that the homeowner could have brought against the original lender under simple contract law. A holder in due course is protected from a claim in recoupment that the borrower could have brought against the original lender (Consumer defenses excepted). The defenses left to the property owner, with respect to defenses the homeowner would have had against the original lender, are those found in UCC § 3-305(a)(1): defenses based on infancy (under the age to contract, usually 18), duress, lack of capacity, illegality of the transaction, fraud that induced the obligor to sign the note, or discharged due to bankruptcy or insolvency proceedings.
The holder in due course doctrine does NOT protect a lender from TILA and other statutory defenses available to consumers. This doctrine is fairly limited in its protection, and relates specifically to regular contract defenses that would have been available against the original lender or mortgage broker.
If the lender claims to be a holder in due course, it must comply with UCC § 3-302. That section roughly requires that the lender foreclosing took the note 1) for value, 2) in good faith, and 3) without knowledge of the default, dishonor, or any defenses or claims raised by the homeowner.[66] Practically speaking, this means the party foreclosing must have acquired the note prior to the homeowner's default. It means the new party/lender took the note with value, meaning it paid something in return for obtaining the note, usually money.
If the property owner is in foreclosure and the party foreclosing claims to be a holder in due course, then conduct thorough discovery to establish when the note was transferred and how much money was paid courts acquisition. You will likely find the party/lender foreclosing will be extremely uncomfortable answering questions about how much was paid to acquire the note, which is obviously helpful for the borrower.
1. If he lender here is claiming to be a holder in due course of this note/loan. Thus, ensure that they prove that they obtained the note 1) for value, 2) in good faith, and 3) without knowledge of the default, dishonor, or any defenses or claims raised by the homeowner. Discovery is key: what day, specifically, the party obtained the note and what they paid.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS
MERS stands for Mortgage Electronic Registration Systems, Inc. MERS began as a project in October 1993 when Fannie Mae, Freddie Mac, and Ginnie Mae produced a White Paper about the need for an electronic mortgage registration system, and the MERS acronym was coined soon thereafter. The Mortgage Bankers Association got involved and MERS was incorporated in October 1995. MERS awarded a contract to Electronic Data Systems (EDS) to develop and service the technology systems, and MERS was officially launched in April 1997.[67]
The MERS® System is a national electronic database that tracks changes in mortgage servicing rights and beneficial ownership interests in loans secured by residential real estate. It is a member-based organization made up of about 3,000 lenders, servicers, sub-servicers, investors and government institutions. Mortgage Electronic Registration Systems, Inc. (MERS) serves as the mortgagee in the land records for loans registered on the MERS® System, and is a nominee (or agent) for the owner of the promissory note.
1. MERS information is available online, but shows inactive.
[pic]
2. Please note that this finding is not determinative and any lawsuit involving the lender may include discovery to determine MERS role, if any.
CREDIT REPUTATION DAMAGES
Upon determining that there has been a statutory violation, legal error, contract breach, or tortious conduct regarding the foreclosure, economic damage may have been inflicted on the home owner(s) as evidenced by the remarks in subscriber credit reports and erosion of the credit scores. This type of damage typically changes the value of a case by many thousands of dollars: Credit damages are not a general cause of action, but damages associated with a violation of a Federal or State law, such as the Fair Credit Reporting Act are. In some cases, a claim also may be made for breach of contract, intentional interference with credit expectancy, fraud, or defamation. [68]
In a recent San Diego case the jury awarded approximately $6,000,000 for loss of credit reputation. An Orange county, CA a bench trial resulted in a $930,000 ruling in favor of the plaintiff for violations of the FCRA. Smaller amounts may be awarded based on the merits of the case.
The injured person need not have perfect credit in order to qualify for credit damages. If it can be documented that the person has credit, although less than perfect, and that credit is diminished as a result of the wrong of another, a case for credit damages can be made. The critical inquiry is whether the injured person’s credit status was changed detrimentally as the result of the wrongful act of another. An injured person might have substantial credit damages even without perfect credit at the time of injury.
Creditworthiness is determined by a creditor’s underwriting department, which determines the probability that the credit applicant will meet debt obligations in a timely fashion. Someone who is deemed likely to satisfy debt obligations is creditworthy while someone who is more likely to default is a greater credit risk and not creditworthy. Thus someone who is considered creditworthy prior to injury to credit by the wrongful act of another and not creditworthy after occurrence of the injury has suffered credit damage.
Credit Damage consists of three distinct types of damages, including actual increased costs, loss of credit capacity, and loss of credit expectancy. These are further defined as follows:
ACTUAL INCREASED OUT-OF-POCKET COSTS
• Increased rates – higher interest, access to less advantageous programs
• Increased cost of credit – higher points on loans, larger down payments
• Attorney fees for the claims
• Increased dollars per month – this increase comes from the higher rate caused by a lower credit rating, or “score,” and can sometimes extend for the life of the loans
• General special damages allowed:
• Mental anguish
• Inconvenience
• Lack of confidence
• Cannot be due to Plaintiff’s actions (self-caused)
• Cannot be due to general market conditions (e.g., a general interest rates rise)
CREDIT CAPAPCITY
• Loss of credit – the inability to borrow at all
CREDIT EXPECTANCY
• Develops when a borrower could apply for credit and have a reasonable chance of getting it.[69]
• Expectation is "the act of looking forward" or “the prospect of receiving.” [70]
• To have valid credit expectancy one need not have a formal contract. [71]
• There must be, however, a reasonable expectation of obtaining credit. [72] This expectancy cannot be too indefinite or remote. [73]
• It is essential that a credit damage expert be engaged in determining the extent of the damages both in review of the possible claims and as an expert witness.
PROCEDURES FOR Resolving mortgage issues
You the homeowner enlisted the services of Mortgage Fraud Examiners to review your mortgage transaction documents. Mortgage Fraud Examiners reviewed said documents and prepared reports, that have disclosed facts establishing certain breaches, errors, tortious conduct, offsets, local, state/federal statutory compliance and other mortgage related issues. Our obligation is now fulfilled; your obligation has just begun.
MFE has identified issues above, and identified items which may become issues upon further research. There are many methods that can be utilized to resolve mortgage issues. The following procedures listed are not comprehensive. All of the following procedures require written communication.
There are general established methods for communicating legal problems such as fraud or breach of contract. These methods vary by state, but normally consist of a set of elements and rules for how to prove each element. There are several ways for you to review these elements and rules for your state. You may ask a local attorney. You may ask state bar self-help centers. You can search on the web, library, or other resources. You may review model user jury instructions for your state to verify that your argument has all the required elements to be presentable to a jury.
NOTICE OF GRIEVANCE AND ISSUE ESCALATION
Most Deeds of Trusts or Mortgages contain language requesting or requiring a Notice of Grievance be sent outlining the issue and providing time for lender to cure it.
Servicers on behalf of investors generally handle these Notice of Grievance or issue letters, and the resolution process is generally outlined by an agreement between the servicer and investor. For example, Fannie Mae’s escalation policies require servicers to have a system and process in place to handle certain issues and allow certain resolution categories. Information on how to escalate an issue is generally available by a telephone call to a servicer or on the servicer’s web site.
Remember, communicating issues and working out solutions in general is more successful if communication is in writing, concise, fact related, and contains the exact relevant exhibits. [74]
A complaint against a bank or its servicer should be filed with the entities below and sent to the state banking regulator, and your Senator and Congressman.
Consumer Financial Protection Bureau
Office of the Comptroller of the Currency
FTC Consumer Complaint Department for TILA and ECOA violations
HUD for RESPA and ECOA Violations
Filing your Housing Discrimination Complaint Online
The Better Business Bureau
LEGAL AID AND SELF HELP LEGAL AID
The nature of your issue may determine what type of attorney you will need. The state bar association in your state will be able to refer you to attorneys knowledgeable in contract and/or tort law, at no cost or with a low cost initial consultation.
Contacts for Legal Aid for the needy and/or Self Help Legal Aid may be available through your local State Court System or State Bar Association.[75]
NOTES ON HIRING LEGAL COUNSEL
When foreclosures started arriving in mass many attorneys chose an easy method of making money. This method is ignoring any real dispute and analysis of the mortgage transaction and instead filing copycat generic defenses that have no merit and may not even delay a foreclosure. Most of these copycat defenses involve “standing,” “MERS,” “securitization,” or other unsupported arguments. This is the most profitable way for an attorney to defend a foreclosure. Pay 5 cents a page for a copy machine formulaic defense, which does nothing to help the borrower, while lining their pockets with thousands the borrower paid, basically to stall the foreclosure. Because this is the most profitable way for the attorney to defend a foreclosure, this is what the majority of blitz advertisements and attorneys you will find doing.
Even if such an Attorney sees a valid foreclosure defense, they universally will not make such a defense on behalf of a borrower. If they do so and win, when word gets out all their prior clients could sue them for malpractice for only using copy machine defenses on their cases.
The fastest way to sort these attorneys out is to simply ask them for a copy of their last three filed defenses and look at them side by side. When they are more or less identical, and ignore any detailed disputes or events, you will know in advance what type of attorney it is and likely how that attorney will prepare your defense. This is a lot faster when time is a concern than hiring the attorney and finding out months later that a copy machine defense was given in your name. Courts generally only give you a single chance to present your case, so be careful about having an attorney waste it.
Some bankruptcy attorneys specialize in mass production and streamlining of bankruptcies using copy machine forms as well, which only stall a foreclosure. However, bankruptcy attorneys knowledgeable in our methodologies will do custom defenses against a lender's proof of claims and relief from stay.
Do your homework and find the type of attorney best suited for your needs. One can simply bypass these types of attorneys and go to contract attorneys. Notes and Mortgages are contracts, and more often than not contain tortious misconduct.
FREE SERVICES
The Consumer Financial Protection Bureau also handles complaints about mortgages. You will want to be specific in your communications, and may copy, edit, and paste relevant Salient Facts above for use in any of your communications. Many pages in Salient Facts are edited down above for size, noted where relevant in red, and their location noted. You may use this format, but also provide the CFPB indexed full-page documents whenever appropriate and available.
Contact parties who may be able to help resolve your issue for free, and explore workout options. These include the loan Servicer, HUD-Approved Housing Counselors at (800) 569-4287, for FHA loans FHA's National Servicing Center at (877) 622-8525, VA on relevant loans, Consumer Financial Protection Bureau online complaint, [76] Fair Housing online complaint, [77] Office of the Comptroller of the Currency online complaint, [78] Hope Now’s Homeowners Hope Hotline at (888) 995-HOPE, your state Attorney General and banking regulators in your state.
Freddie Mac Foreclosure Resource Center.[79] Check here for a list of contact information for Attorneys General, pro se legal resources.[80]
SAMPLE GRIEVANCE LETTER
Date:
To:
[Your mortgage servicer
Your mortgage servicer’s address]
From:
[Your full name
Your street address
Your city, state, and ZIP Code]
Re: Grievance Notice under Clause 20 of the Deed of Trust/Mortgage & 12 C.F.R. §1024.35
Mortgage Loan Number: [Your loan number]
I am writing to report my grievances regarding the mortgage transaction involving my property at [Your home address].
[INSTRUCTIONS: Provide a full description of the harms identified within the analysis we provided. Where needed paraphrase.]
If you need to contact me, I can be reached at [Include the best contact information, which may be your home address, work or mobile phone, or email address.]
Sincerely,
[Your name
Co-borrower’s name]
-----------------------
[1] Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965) (as found in this famous goods transaction).
[2] Id.
[3] An IL court has stated, “a contract is unconscionable where it is improvident, oppressive or totally one-sided. Relevant factors include gross disparity in bargaining positions of the parties together with terms unreasonably favorable to the stronger party.” Reuben H. Donnelley v. Krasny Supply Co., 592 N.E.2d 8, 12 (Ill.App.Ct 1991).
[4] Some jurisdictions only require either procedural or substantive unconscionability be present, but the majority require both.
[5] OCC Advisory Letter AL 2003-2.
[6] Id. (List quoted from advisory opinion.)
[7] Id. (List quoted from advisory opinion.)
[8] See AARP “Subprime Mortgage Lending and Older Americans,” (March 2001) (predatory lending practices often are targeted at older homeowners), available at .
[9] See AARP “Subprime Mortgage Lending and Older Americans,” (March 2001) (predatory lending practices often are targeted at older homeowners), available at .
[10] Interagency Guidance on Nontraditional Mortgage Product Risks, 71 FR 58609. Also, see the Statement on Subprime Mortgage Lending, 72 F.R. 37569-01. On June 7, 2006 the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) announced their intent to develop parallel guidelines. Available at .
[11] 12 C.F.R. § 226.34(a)(4)
[12] MCCLOSKEY ET AL V. NOVASTAR MORTGAGE, INC. or In re Hill (City National Bank v. Hill)
Read more at
[13] Adams v. Nationscredit Financial Services Corp.¸351 F. Supp.2d 829 (N.D. Ill. 2004).
[14] 15 U.S.C. § 1640(a)(1), (2).
[15] 15 U.S.C. § 1640(g).
[16]
[17]
[18] Consumer means a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§ 226.15 and 226.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest.
[19] § 226.23(d)(2)
[20] Mangindin v. Washington Mutual Bank, 2009 U.S. Dist. Lexis 51231 *9 (N.D. Cal. June 18, 2009).
[21] Good v. DEUTSCHE BANK NATIONAL TRUST COMPANY, Fla: Dist. Court of Appeals, 4th Dist. 2012
[22]Shuman v. Standard Oil Co., 453 F. Supp. 1150, 1154 (N.D.Cal.1978).
[23] Anderson v. United Finance Co.,666 F.2d 1274 (9th Cir. 1982.
[24] Regulation B, Equal Credit Opportunity 12 CFR 202.14(b)
[25] Section 802 of the Act defines Familial Status as minors under the age of 18 domiciled with an adult.
[26] 15 U.S.C. § 1692(g).
[27] Id.
[28] 15 U.S.C. § 1692(c)(a).
[29] 15 U.S.C. § 1692(c).
[30] Also see discussion here.
[31] 15 U.S.C. § 1692k(a)
[32] 15 U.S.C. § 1692(a)(6).
[33] Id.
[34] Id. Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, LLC., 214 F.3d 872 (7th Cir. 2000). However, if the law firm does not make contact with the borrower other than to file the lawsuit, the Complaint is not considered an initial contact. 15 U.S.C. § 1692(g)(d).
[35] 15 U.S.C. § 1692(c)(a).
[36] 15 U.S.C. § 1692(f)(1)
[37] 15 U.S.C. § 1692(a).
[38] Cf, GLAZER v. CHASE HOME FINANCE LLC, Court of Appeals, 6th Circuit 2013
[39] 16 U.S.C. § 1692(a)(6).
[40] 16 U.S.C. § 1692(k)(a)(1), (2)(A).
[41] FAUSTO v. CREDIGY SERVICES CORP., 598 F.Supp.2d 1049 (2009); McCOLLOUGH v. JOHNSON, RODENBERG & LAUINGER, 587 F.Supp.2d 1170 (2008)
[42]16 U.S.C. § 1692(k)(a)(3).
[43] Here are the lists of TARP recipients (money paid under Capital Purchase Contracts) and HAMP participants.
[44] See Page 3 of Home Affordable Modification Program Guidelines, dated March 4, 2009.
[45] U.S. Department of the Treasury, Secretaries Geithner, Donovan Announce new Details of Making Home Affordable Program, Highlight Implementation Progress (May 14, 2009) (online at
[46] Before Plaintiff is entitled to summary judgment in foreclosure, it must either “factually refute the alleged affirmative defense or establish that they are legally insufficient to defeat summary judgment.” Frost v. Regions Bank, 34 Fla. L. Weekly, D1575 (Fla. 1st DCA Aug. 5, 2009); Knight Energy Services v. Amoco Oil Company, 660 So. 2d 786, 788 (Fla. 4th DCA 1995). Any substantial deviation from the requirements may create an equitable affirmative defense. Cross v. Federal National Mortgage Association, 359 So.2d 464 (Fla. 4th DCA 1978).
[47] UCC Article 3. UCC §§ 3-104, 3- 102.
[48] UCC § 3-102.
[49] UCC § 1-201(21) (revised); UCC § 3-301; In re Wells, 407 B.R. 873, 879 (S.D. Ohio B.R. 2009).
[50] UCC § 3-201 cmt. 1.
[51] UCC § 3-301(2); Citizens Federal Savings and Loan Assoc. of Dayton v. Core Investments, 78 Ohio App.3d 284, 287 (10th Dist. 1992).
[52] UCC § 3-203 c. 4. Or Hosea Anderson, et ux. v. John S. Burson, et al., No. 8, September Term 2011 or 2009.
[53] UCC § 3-109.
[54] UCC § 2-102(39).
[55] UCC § 3-204
[56] IN RE MATTER OF KEMP, Bankr. Court, D. New Jersey 2010
[57] Lawyers Title Ins. Co., Inc. v. Novastar Mortg., Inc., 862 So. 2d 793 - Fla: Dist. Court of Appeals, 4th Dist. 2003
[58] UCC § 3-202 (2) (“An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof.”); In Re Wells, 2009 WL 1740675 (Bnkr.S.D. Ohio 2009); Crossland Sav. Bank FSB v. Constant, 737 SW 2d 19 (Tex App. 1987); (“The courts are split concerning whether stapling an indorsement to a note constitutes "firm affixation" under the UCC.”) See generally, Hawkland & Lawrence, UCC Series § 3-202.05 (Art. 3) (1984 & Supp 1986), Annot. 19 A.L.R.3d 1297 (1968).
[59] UCC § 3-202 (2).
[60] UCC 3-501(b)(2)
[61] Id.
[62] UCC 3-602(a).
[63] Bank of New York v. Raftogianis, 13 A. 3d 435 - NJ: Superior Court, Chancery Div. 2010
[64] See IN RE MATTER OF KEMP, Bankr. Court, D. New Jersey 2010 vs. IN RE WALKER, Bankr. Court, ED Pennsylvania 2012
[65] UCC § 3-305.
[66] UCC § 3-302(a)(1).
[67] ^ "Yes, There is life on MERS". Retrieved March 18, 2012.
[68] Barragan V. Deutsche Bank Nat. Trust Co., No. CV 15-02614 DDP FFMX, 2015 WL 3617104, at *5 (C.D. Cal. June 9, 2015) (creditworthiness is among the harms courts have recognized in wrongful foreclosure actions).
[69] Shuman v. Standard Oil Co., 453 F. Supp. 1150, 1154 (N.D.Cal.1978).
[70] Black's Law Dictionary, 2nd edition. 2006.
[71] American Bank of Princeton v. Stiles, 731 S.W.2d 332, 343 (Mo. App. 1987)
[72] Killian Construction v. Jack D. Ball & Associates, 865 S.W.2d 889, 891 (Mo. App. 1993)
[73] Genovese v. DCA Food Industries, Inc., 911 F. Supp. 378, 380 (E.D. Mo. 1996).
[74]
[75]
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