Litigation Trends in Servicing, Foreclosure and REO Areas

1
Litigation Trends in Servicing, Foreclosure and
REO Areas

• Presentation Subtitle

2
MERS the good, the bad and the ugly

• The Good
• Jackson v. Mortgage Electronic Registration
  Systems, Inc., 770 N.W.2d 487 (Minn. 2009)
• Bucci v. Lehman Brothers Bank, FSB, No. 09-3888
  (R.I. Super. Ct. Aug. 25, 2009)
• Ramos v. Mortgage Electronic Registrations
  System, Inc., No. 208-CV-1089-ECR-RJJ (D. Nev.
  March 4, 2009)
• Cervantes v. Countrywide Home Loans, Inc., No. CV
  09-517-PHX-JAT (D. Ariz. Sept. 23, 2009)

3
MERS the good, the bad and the ugly

• The Bad
• Landmark National Bank v. Kesler, 2009 WL 2633640
  (Kan. 2009)
• Bellistri v. Ocwen Loan Servicing, LLC, 284
  S.W.3d 619 (MO. Ct. App. 2009)
• In re Hawkins, 2009 WL 901766 (Bankr. D. Nev.
  2009)

4
MERS the good, the bad and the ugly

• The Ugly
• Nevada (4), California (1) and Arizona (2)
• Lopez v. Executive Trustee Services, LLC, No.
  309-cv-180-ECR-VPC (D. Nev.)
• Goodwin v. Executive Trustee Services, LLC, No.
  309-cv-00306-ECR (D. Nev.)
• Green v. Countrywide Home Loans, Inc., No.
  309-cv-00374-BES (D. Nev.)
• Dalton v. CitiMortgage, Inc. No.
  309-cv-00534-RCJ (D. Nev.)
• Cervantes v. Countrywide Home Loans, Inc., No.
  09-cv-517-JAT (D. Ariz.)
• Robinson v. GE Money Bank, No. 409-cv-227 (D.
  Ariz.)
• Vargas v. Countrywide Home Loans, Inc., No.
  209-cv-2309-SJO (C.D. Cal.)
• Plaintiffs allege that the designation of MERS
  impermissibly splits the note from the security
  and thus rendered the note unsecured. Relies
  primarily on the negative Nevada BK decision.
• Seeking to enjoin all foreclosures in CA/NV/AZ

5
TILA Rescission Litigation

• Borrowers Right to Rescind
• Up to 3 business days after consummation of the
  loan or
• Up to 3 years after consummation of the loan if
  TILA disclosures are not made.
• Typical claims to extend the right of rescission
  include
• Failure to provide two (2) copies of the Notice
  of Right to Rescind
• Failure to provide copies of loan docs at
  closing
• Failure to make the proper TILA disclosures
  (especially as to Option ARM loans)
• Misrepresentation in the original loan terms

6
Common TILA Rescission Claims

• Notice of Right to Rescind
• Typical Fact Pattern No date or wrong date on
  one copy of the NOR
• Compare
• Even a blank date on one Notice violates TILA.
  Horton v. Cal. Credit Corp. Retirement Plan, 2009
  WL700223 (S.D. Cal. March 16, 2009)
• Semar v. Platte Valley Federal Savings and Loan
  Association, 791 F.2d 699 (9th Cir. 1986)
• A blank date does not extend the 3 day right of
  rescission to 3 years. Melfi v. WMC Mortgage
  Corporation, 568 F.3d 309 (1st Cir. 2009)
• When is rescission not allowed
• Purchase money loan
• Non- Owner occupied property
• Terminates with sale of property (including
  foreclosure sale)
• 3 year SOL

7
3 Step Rescission Process(15 U.S.C. 1635 12
C.F.R. 226.23)

• Written notice of rescission.
• Within 20 days of receipt of the written notice,
  the lender must
• Return to borrower any money or property given as
  down-payment AND
• Terminate the security interest of the loan.
• After the lender has performed, the borrower must
  return any money or property received from the
  loan, less any finance or other charges incurred
  under the loan. If the lender does not take
  possession of borrowers tender within 20 days,
  the borrower may keep the money or property
  without any further obligation.

8
Conditioning TILA Rescission

• The 9th Circuit Approach to Tender
• Security instrument is NOT automatically void
  upon delivery of the notice of rescission as a
  strict reading of the code would specify, but
  rescission is conditioned equitably on the
  borrowers ability to tender. Yamamoto v. Bank of
  New York, 329 F.3d 1167 (9th Cir. 2003).
• Recent Favorable Decisions
• Carlos v. Ocwen Loan Servicing, LLC, No. CV F
  09-0260LJOGSA (E.D.Cal. May 08, 2009)
• Sitanggang v. Indymac Bank, F.S.B., No.
  CVF09-0367LJOSMS (E.D.Cal. May 06, 2009)
• Guerrero v. Citi Residential Lending, Inc., No.
  CVF08-1878 LJO GSA (E.D.Cal. Apr. 03, 2009)
• Pagtalunan v. Reunion Mortg. Inc., No.
  C-09-00162EDL (N.D.Cal. Apr. 08, 2009)
• Garza v. American Home Mortg., No. CV F
  08-1477LJOGSA (E.D.Cal. Jan. 27, 2009) and
• Edelman v. Bank of America Corp., No. SACV
  09-00309-CJC (MLGx) (C.D.Cal. Apr. 17, 2009).

9
Attacking TILA Rescission Claims

• Remove the matter to Federal Court
• MTD Challenging the right to rescind and
  requiring a tender as condition of rescission
• Dispute the factual allegations of TILA
  violations AND
• Counter Claim for the Declaratory Relief (tender)
  and for Equitable Subrogation and an Equitable
  Lien

10
Californias Foreign Languages Act Civil Code
1632

• Provides right of rescission if the loan was
  primarily negotiated in a foreign language, but
  reduced into an English writing and not
  translated orally.
• Limited to
• Spanish
• Chinese
• Tagalog
• Vietnamese
• Korean
• Right to rescind is absolute.
• Many foreign speaking homeowners are alleging
  violation of this code in an attempt to get out
  of the debt obligation or force a loan
  modification.

11
Defending 1632 Claims

• Exception 1632 does not apply to loans secured
  by real property
• Exception to the exception, applies to real
  estate loans procured by licensed Real Estate
  Brokers
• 2. Was the loan truly negotiated in the foreign
  language?
• Whos agent is the Broker?
• Does the borrower read/write English?
• 3. Tender Requirement and
• 4. Cross-claim for Dec Relief and Equitable
  Subrogation.

12
Loan Mod Litigation

• Minnesota Class Action Williams v. Geithner,
  No. 09-cv-01959-ADM-JJG (D. Minn. Filed July 28,
  2009)
• NV notice claims Michael Harker
• Litigation to Shut Down Unscrupulous Loan Mod
  Companies
• Californias Legislative Efforts on Advance Fees

13
Compliance Litigation

• California
• SB 1137 (Civil Code 2923.5 and 2923.6)
• Civil Code 2923.52 CAs Foreclosure Prevention
  Act
• Nevada
• New Nevada Mediation laws
• Other States
• As States continue to add legislative layers on
  the pre-foreclosure, foreclosure and REO process,
  we will see more and more litigation over the
  industrys compliance with those new laws.