Posts Tagged Litigation

Bank of America, Wells Fargo Sue Themselves in Foreclosure Cases

Chalk this one up in the category of “How Stupid Can They Get.”  Bank of America has sued itself–multiple times–in foreclosure cases in Florida.  You read that right, Bank of America has sued itself to enforce a foreclosure.

As a Texas foreclosure defense lawyer, this even leaves me scratching my head.  The situation arose when Bank of America acted as the servicer for the for original lender (first mortgage holder) and when BoA also extended a home equity loan (a second mortgage) on the same property.  As the servicer, they sued to foreclose and named all junior lienholders, which they also happened to be as the lender of a home equity loan.

Technically, this may have been the correct procedure–in theory.  In reality, it’s absolutely ridiculous, both on the part of Bank of America and their lawyers.  As an attorney, I could not imagine a scenario where I would recommend to my client that they sue themselves.  In fact, I would have a conflict of interest as soon as the suit was filed, requiring me to withdraw as their lawyer.  This is a shining example of Bank of America mindlessly generating forms and documents without regard to their consequence.

You would think that something this absurd is a rarity, but it’s not.  As early as 2009, Wells Fargo was reported for having sued itself in similar cases.

So, when you’re working with your “lender” on a modification or reinstatement of your loan, and they act as if they’re genuinely interested in trying to help you, just remember that these are the exact same folks that will sue themselves.

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Dallas Attorney Walker M. Duke Stops Eviction with Temporary Injunction

A Dallas-Fort Worth-area family will get to stay in their home while pursuing litigation against Nationstar Mortgage and Fannie Mae, who foreclosed and tried to evict the homeowners from their residence.  Foreclosure defense attorney Walker M. Duke obtained a temporary injunction, which prohibits the banks from evicting the plaintiffs and their family while the lawsuit is pending in court. 

The lawsuit seeks a judicial determination that Nationstar Mortgage had no right to foreclose on the homeowner’s property and that as a result, Fannie Mae, who bid on the property at the foreclosure sale, had no right to take possession of the house.

Attorney Walker Duke of the Duke Law Office, who represents the homeowners, applauded the court’s ruling.  “The property records, which were filed by the bank, are false on their face.  It’s clear there are legitimate issues as to title and why the bank filed such blatantly false records with county.  I’m very pleased that the homeowners will be able to keep their house while investigating the bank’s misbehavior.”

Duke cautioned that bank mistakes are not uncommon.  “Property records have been maintained by local county officials for literally hundreds of years–it’s the foundation of our American property system.  There are laws that require these records to be accurate when filed.  Apparently, the banks feel these laws don’t apply to them.  I’m just trying to hold them accountable.”

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The Building Blocks of Securitization

In the practice of foreclosure defense, one of the issues I frequently run into is securitization of mortgages.  We’ve talked about securitization on this site numerous times.  There is also plenty of internet chatter about securitization–some of it legit, some of it little more than crazy talk out of people with way too much time on their hands.

I’ve explained the concept of securitization to many, many people–clients, other attorneys, and judges.  After a thorough discussion, most have a basic understanding of the principles behind it.  But I’ve often wondered what people would think if they saw it in action.

Well, here is your chance.  You want to take on the bank?  Good for you.  Here’s a prospectus for an asset-backed trust (this one happens to be a Bear Stearns trust).  The prospectus describes the trust, and is essentially the sales “brochure” to potential investors.  Want to know how that trust was formed and operated?  Here you go–the Pooling and Servicing Agreement.  The Pooling and Servicing Agreement is basically the the operating manual for the trust.  The posted links take you directly to the documents posted on SEC’s EDGAR website (which lets you search the filings for all publicly traded companies from the comfort of your computer).

You still want to take on the bank?  Then you’d better understand every word of those documents (or similar ones) so you know exactly how the trust was supposed to have handled your mortgage.  After all, you can’t know whether they did something wrong if you don’t know what they needed to do to be in the right.  And then you’d better be able to explain it in terms that are understandable to your mother or grandmother, who has no understanding of Wall Street structured finance.  Why?  Because ultimately, that’s who’s going to be on a jury (if you make it that far) deciding your fate.

If this post seems a little snarky, I promise that’s not the intent.  But I firmly believe that homeowners need to know what they’re up against, particularly if they have any inclination of doing it alone.  It’s simply not enough to read Neil Garfield’s Living Lies blog, 4closurefraud.org, or nakedcapitalism.com.  Those are great websites, don’t get me wrong, but there’s a big difference between reading commentary and analyzing the building blocks of securitization on your own.  You need to be able to find, read, analyze, and comprehend the primary sources concerning your mortgage–the trusts’ prospectuses and pooling and servicing agreement.

Taking on the big banks in defense of a foreclosure is serious business, and homeowners should be prepared for the fight.  Generalization about some case three states over isn’t going to convince any judge.  You need solid evidence about YOUR mortgage, and that includes an analysis of the asset-backed trust that may, allegedly, hold your note.  Just like the old saying, don’t go into a gun battle with a knife.

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Dallas District Attorney to File Lawsuit Against MERS for Unpaid Fees

Pegasusnews.com out of Dallas is reporting that Dallas County District Attorney Craig Watkins plans to file a lawsuit against MERS for what is believed to be millions of dollars owed to the county for unfiled fees.  Watkins says that every time a mortgage in Dallas County changed hands, lenders should have recorded the transaction with the county clerk, which would have generated a fee.  By MERS “holding” mortgages as they were passed around from investor to investor, they were rarely recorded, which deprived the county of millions of dollars in revenue.

County officials have estimated the uncollected fees between $50 million to $100 million.  “Counties are suffering financially,” District Attorney Watkins said, “If the fees were paid, they would not have to [struggle].” The district attorney says he felt this lawsuit was necessary to protect the interests of Dallas County citizens. “It’s because of the nefarious activities of some of these entities that the county has been harmed,” he adds.

As a Dallas County attorney and resident myself who has seen the county’s budget woes first hand (the Dallas County courts are, after all, paid for by Dallas County revenues), I understand the District Attorney’s position of needing to sue MERS.  And as one who had to pay filing fees for my own house, I appreciate the seeming lack of fairness as to who shoulders these costs.  Now, I’m not a big fan of excessive government fees and taxes, but I also understand the need for paying a reasonable fee for legitimate government services.  Homeowners must pay to record their deeds, but Wall Street investors don’t have to?  Doesn’t quite seem fair, does it?

Good luck to Dallas County in their lawsuit against MERS.  And if/when the county recovers, please fix the potholes on my street!

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Federal Government Sues Major Banks Over Fannie Mae and Freddie Mac Losses

If you thought you, as a homeowner, were all alone in this battle against lenders, you’re not.  Federal regulators just recently launched a broad legal assault on big banks, claiming they sold nearly $200 billion in fraudulent mortgage investments to housing giants Fannie Mae and Freddie Mac that led to massive losses during the financial crisis.

The federal lawsuits, brought by the Federal Housing Finance Agency, named 17 domestic and foreign banks as defendants. Among them (click each bank name to see individual lawsuits against each bank): Bank of America, J.P. Morgan Chase, Goldman Sachs, Morgan Stanley, Citigroup and Deutsche Bank.  According to the court filings, those firms and others “falsely represented” the quality of the loans that were bundled into securities and sold to investors and “significantly overstated the ability of the borrower to repay their mortgage loans.” The result, the suits claim, were investments that were far riskier than the banks led taxpayer-backed Fannie Mae and Freddie Mac to believe, and the securities ultimately were worth a fraction of their original value.

In my opinion, these lawsuits by the federal government against the banks are significant for two reasons.  The first shows what a mess we’re in–the government is now suing the very banks that it bailed out to the tune of hundreds of billions of dollars just a few short years ago.  I understand the reason why (and I’m sure politics had a lot to do with it), but it seems a counter-productive to sue the very entity you’re trying to help.

The second reason that I believe these suits are significant is that, according to the allegations, it shows just how little you can trust these banks.  They were receiving a massive handout from the government–a lifeline that kept the financial system from collapsing–and they still tried to push off a pile of junk onto Uncle Sam.  It reminds me of the old Life cereal commercial where the kids don’t want their breakfast and push it off to Mikey because he’s the younger brother and won’t object.  Well, according to this lawsuit, these banks didn’t want their breakfast, i.e. the bad loans they made, so they simply slid them down the table for the U.S. taxpayer to eat.

If these firms are willing to bite the hand that feeds them–literally, the hand that saved these institutions from suffering the same fate as Bear Stearns and Lehman Brothers–just imagine what they’re willing to do to you.  If a multi-billion dollar bailout from the federal government doesn’t keep them in line, what odds do you think you have with your $100,000, $200,000, or $300,000 mortgage?

Now, I’m not saying that everything that lenders do is wrong or in bad faith.  After all, they have made many, many loans and helped a lot of families live the American dream.  However, what I am saying is that you shouldn’t count on your lender to work in your best interest, particularly if you are struggling with your mortgage.  As we’ve preached on this blog many times, you have to look out for yourself.  Don’t count on representations made over the phone with the “call center in India.”  If you think you have a workout agreement, modification, or loan forbearance with your lender, GET IT IN WRITING!!!  Without more, you will most likely not be able to enforce some representation made over the phone by a call center operator (who doesn’t know anything more about your loan than what’s pulled up on their computer screen).

Uncle Sam has taken matters into their own hands by pursuing legal action against the banks.  Say what you will about the propriety of suing the entities they bailed out, but the federal government has gone on the offense to protect their interests.  Homeowners should do the same.

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What Does AHMSI’s Lawsuit Against Lender Processing Services and DocX Mean for Homeowners?

The big news in the mortgage and foreclosure world was that servicer American Home Mortgage Servicing, Inc. filed a lawsuit against Lender Processing Services, Inc. (LPS) and its subsidiary, DocX, in Dallas County District Court in Texas for breach of contract (among other claims).  Or at least that is what was alleged in the petition.  Translated into plain English, AHMSI sued LPS and DocX for LPS and DocX for widespread robosigning, which potentially calls into question the validity of documents on more than 30,000 mortgages–according to the lawsuit.

I highly recommend reading the lawsuit and its many exhibits, as it is a roadmap of how at least a piece of the mortgage servicing industry works.  And, it’s a look at what happens if your loan is serviced by American Home Mortgage Servicing, Inc./AHMSI and you are facing foreclosure.

But enough about the particulars of the lawsuit itself.  What does this mean for homeowners?

I believe this lawsuit calls into question virtually every foreclosure attempted by AHMSI.  This alleged fraud was not simply a few isolated incidents–over 30,000 cases have been claimed.  More importantly, this is not just some suspicion or claim by an attorney or a story on 60 Minutes–this is an actual admission in a court document by one of the parties to the transactions.  This is huge for homeowners.

The practical effect for homeowners, in my opinion, will be that it will be a little less difficult to stop AHMSI foreclosures in court.  This lawsuit (and its accompanying exhibits) will be attached to applications for temporary restraining orders as “Exhibit A.”  I certainly plan to use it, and I believe judges will take a second look at foreclosures that AHMSI and LPS and DocX have touched.

Does this mean that every document that AHMSI, Lender Processing Services, and DocX created is fraudulent?  No.  But the practice was widespread enough that it calls into question virtually every foreclosure they are now attempting.

In the grand scheme of things, the AHMSI lawsuit against LPS and DocX didn’t say anything that wasn’t already being alleged across the country; namely, that there are serious inconsistencies in foreclosure-related documents.  But to have this admission come from one of the parties themselves is a major change and another reason for homeowners to take control of their own fate instead of leaving it up to the whims of the bank.

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Bank of America to Pay $8.5 Billion to Settle Mortgage Securities Fraud Claims

The legacy of fraud from Countrywide Financial continues. The Associated Press is reporting that Bank of America will pay $8.5 billion–that’s right, BILLION–to settle claims by purchasers of mortgage-backed securities. Investors had alleged that Countrywide (which was bought by Bank of America) sold them poor mortgage-backed securities that lost a substantial amount of their value. 

Now, what exactly are these “mortgage-backed securities” that were the subject of these claims and, perhaps more importantly, how does this impact homeowners?  Your mortgage loan has most likely been pooled together with thousands of other mortgage loans into a special entity called an asset-backed trust (which is a type of “special purpose vehicle”).  These trusts exist solely to receive income from mortgage payments, and then distribute the proceeds to owners of the trust (i.e. the “certificateholders”).  Bank sold “certificates” on the trust, which is kind of like selling shares of stock in it.  Investors would buy these certificates as a type of investment, with hopes that they would receive a return in the form a distributions (made from the mortgage loan income the trust received).

The trusts, and the Wall Street banks that set them up, were supposed to follow certain protocol and risk management procedures, as these were investment securities.  Insurance companies, pension funds, municipalities, and many other investors bought these certificates, believing they were good investments.  After all, the investors were counting on Countrywide loans–and what company was hotter in the mid-2000’s than Countrywide?

Well, hindsight has shown us that Countrywide wasn’t as squeaky clean as they once appeared.  They had questionable loan procedures and made thousands upon thousands of bad loans.  Which means investors in the pools of these bad loans lost billions and billions of dollars.  Not just Wall Street investors, but pension funds, too, that contained the retirement savings of millions of hard-working Americans. 

I’m sure one of the terms of this $8.5 BILLION settlement is that Bank of America will deny any culpability or guilt.  That’s typical of any settlement–standard lawyer operating procedure.  However, no company agrees to pay out that enormous sum of money without some risk of liability.

Now, what does this mean for homeowners?  In my opinion, it’s further confirmation of what I’ve already been preaching–you have to take control of your own destiny and don’t rely on the bank to look out for your best interests.  No modification or workout is final until it is signed in writing, and you can (and will) be foreclosed on while the process is pending.  Countrywide was willing to make loans they knew (or reasonably should have known) borrowers would never be able to repay.  Why?  Because repayment didn’t matter to them.  They packaged up the loan and sold it off to someone else, who eventually bore the risk of homeowners not being able to repay the loan.  On the one side, they screwed homeowners by selling them something they couldn’t afford.  And on the other side, they screwed investors by packaging up and selling bad securities.

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Dallas Attorney Stops Another Foreclosure with Temporary Restraining Order

Dallas attorney Walker M. Duke of Duke Law Office, P.C. recently scored another victory for homeowners by stopping a Fort Worth-area foreclosure just 24 hours before the bank was going to sell the house.  Duke, a foreclosure defense attorney, obtained a temporary restraining order that prevented the foreclosure sale.  He also filed a lawsuit seeking a determination of the rights of the bank that tried to foreclose.

Attorney Walker Duke stated that there are “legitimate concerns about whether the bank even holds this homeowner’s mortgage.”  More importantly, he said, “the bank did not comply with the clear requirements set out under Texas law.  This homeowner did not even receive a notice of the foreclosure until four days before the sale was to take place.  That’s a blatant violation of even the most basic foreclosure statutes.”

The accompanying lawsuit seeks declaratory judgment that the foreclosing bank has no right to conduct a sale and money damages for fraud.

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Massachusetts Supreme Court Strikes Down Foreclosures by Wells Fargo and U.S. Bank

The Massachusetts Supreme Court issued a ruling voiding the seizure of two homes by Wells Fargo and U.S. Bank after they failed to show they actually held the mortgage to the homes at the time of foreclosure.  The mortgages of the two homes at issue had been sold and assigned numerous times until they ultimately were placed in a type of trust that was sliced up and sold to investors in the form of mortgage bonds or mortgage-backed securities.  Wells Fargo and US Bank were the entities that supposedly held the title to these houses on behalf of this “holding trust” at the time of the foreclosure sale.  Each bank then bought the home that it foreclosed on, at a price well below market value.

In its ruling, the Massachusetts court ruled that the chain of title of the mortgage from the original lender (the originator) to these holding trusts was not clear.  Therefore, these trusts did not have the right or ability to sell the property, and the purchaser of the foreclosed-upon property did not actually own it.

What will be the fallout from this Massachutes foreclosure ruling?

This is a rapidly developing area of law, but one of the most likely immediate results will be that judges who have been hesisitant to block foreclosure sales may take a second look at the banks’ documentation.  These legal actions to stop foreclosures are being given added legitimacy as more and more of the banks’ practices are coming to light.  If fact, the Massachusetts foreclosure ruling included a scathing rebuke of the lenders, calling their documentation “utter carelessness” and instructing mortgage holders “to take care to ensure that [their] legal paperwork is in order.”

I have personally stopped foreclosure sales and evictions in Texas, and I can tell you from first hand experience that these developments are creating a new legal landscape in which home owners fight to keep their homes.  Judges traditionally have looked at foreclosure-related lawsuits as last ditch attempts to stall a trustee sale.  Now, they are starting to develop a skeptical eye toward the banks.

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Citi’s Mortgage Mess Could Be Bigger Than Anticipated

Citi is one of the banks that has found itself caught up in the recent foreclosure mess, could be facing more problems, including litigation.  Not only is the bank being hit by homeowners challenging foreclosures, it is also facing possible liability to investors who bought Citi’s mortgages.  To understand Citi’s potential problems (as well as other major banks), and also to better understand the current “foreclosure crisis,” it is important to understand just exactly what the big banks did with your mortgage (and the thousands of other mortgages they acquired).

Remember the movie “It’s A Wonderful Life”?  Of course you do, it’s a holiday classic.  The movie’s main character, George Bailey, had a small savings and loan bank in Bedford Falls.  “Bailey Building & Loan” lent money to the citizens of Bedford Falls to build homes, stores, etc.  Bailey Building & Loan loaned its actual funds, and when the homeowners of Bedford Falls made their mortgage payments, they sent a check to Bailey B&L (okay, those details weren’t actually in the movie…because who wants to watch a movie about banking).

The banking and mortgage industry today is nothing like what we saw in It’s A Wonderful Life.  The company you got your mortgage from (the “originator”) most likely funded it with money from another financial institution.  That originator then packaged a number of mortgages together and sold them to a big bank (such as Citi, JP Morgan, Bank of America, or Wells Fargo).  The large banks then took thousands of home loans, pooled them together, and put that pool of loans through a process called “securitization.”

Through securitization, the banks would essentially create a corporate entity or trust that held this large pool of loans, then sell off interests in this new entity or trust to investors.  This process was similar to setting up a traditional company and selling shares of stock in it.  However, instead of owning tractors or equipment, this new entity only owned home loans.  Investors would then have the right to revenues that came in as the homeowners repaid the loans.

In short, your mortgage is most likely not owned by the community bank down the street.  It was probably sold to a big bank, pooled with thousands of other loans and “securitized,” and then sold off to third party investors (such as pension funds, university endowments, charitable trusts, etc.).  This is where banks such as Citi, Bank of America, and Wells Fargo are finding themselves in trouble.  These banks made certain representations to potential investors about the securities (generally referred to as “mortgage back securities”).  As the deficiencies in the underlying mortgages have come to light in recent months, these mortgage backed securities have also taken a hit.  And the investors are now looking at the banks that created and sold them these securities.

So the current mortgage and foreclosure mess that the banks created runs very deep.  When they played fast and loose with mortgages, not only are they affecting the homeowners who just want to keep a roof over their family, they’re impacting innocent investors as well.

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