Foreclosure Defense: Debtors Win Victories Against Mortgage Servicers

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Debtors Win Victories Against Mortgage Servicers

posted by Katie Porter

In the last few weeks, several courts have issued opinions ruling that mortgage servicers’ actions have harmed consumers. Some of you follow this issue closely, but if you need an introduction, I’ve previously posted a bit on the basics of mortgage servicing and why it’s an important component of the foreclosure problem. After the jump, I summarize three recent and newsworthy decisions. Debtors won big in these cases, variously recovering sizeable damages, having the foreclosure action against their home dismissed, or getting a preliminary injunction issued against a servicer’s misconduct. Taken collectively, they all signal an increased willingness by courts at all levels (state, federal, bankruptcy) to take challenges to mortgage servicers’ actions seriously. While I’m convinced that legislation, regulatory enforcement, and different market incentives are necessary to stop the misbehavior of mortgage servicers, this trio of decisions shows how litigation can help real families and point the way for further policymaking.

The Jones v. Wells Fargo decision from the bankruptcy court in the Eastern District of Louisiana was a landmark opinion in describing the problems with Wells Fargo’s servicing of bankruptcy debtors’ mortgages. On July 1, 2008, the district court ruled on Wells Fargo’s voluminous appeal. The court affirmed the bankruptcy court’s factual findings and legal conclusions that actions like misapplying plan payments violates the Bankruptcy Code. The district court remanded to the bankruptcy court on the remedy, ruling that while the bankruptcy court had injunctive powers to order new accounting standards, the court should first make a finding that there was “no adequate legal remedy as an alternative to monetary punitive damages.” If I were Wells Fargo (and I’m grateful that I’m not), I’d be worried that the remand is an invitation to a large sanction. Wells’ decision to appeal the new accounting standards is itself noteworthy. Why not embrace correct accounting? Do servicers prefer to pay monetary damages on those rare (albeit increasingly frequent) occassions when they get caught and continue to overcharge debtors in all other instances? It appears the answer may be “yes.” I’ll post an update when the bankruptcy court rules on the remanded issue.

The bankruptcy court in the Eastern District of Arkansas granted a preliminary injunction against a mortgage servicer, ASC, to halt its “continuing its efforts to collect payments from [the debtors] that they did not owe.” While the matter will proceed to trial for final disposition, the opinion in support of the injunction finds that ASC misapplied 14 payments, sent the debtors “inaccurate, incomprehensible mortgage statements,” and refused to stop collecting. The court concluded that an injunction was required, in part, because the servicer had admitted that it “could not guarantee that it would not violate” an agreement to stop collecting, even though it had put a “stop call” on the account. This latter bit caused the judge to note that “[i]n other words, ASC’s counsel explained that ASC could not be responsible for its own actions.” The injunctive relief here is an important new remedy that we haven’t seen used frequently in the bankruptcy context.

On June 5, 2008, a New York state court dismissed with prejudice a foreclosure proceeding because Wells Fargo, and its servicing agent, Litton, could not prove that Wells Fargo owned the mortgage. The note had purportedly been assigned from Argent to Ameriquest to Wells Fargo but the court found the assignments defective. It also ruled that the servicing agreement between Wells Fargo and Litton was insufficient to give Litton authority to make the required “affidavit of facts” to support the foreclosure petition. While the original mortgage between the debtor and Argent seems to remain valid, the court ordered the other mortgages removed from the real property records. This “lack of standing” decision is very similar to the relief that two federal courts in Ohio granted to plaintiffs earlier this fall. While my research study found that 40% of bankruptcy claims were not accompanied by a note, these cases reveal the existence of an even bigger problem–the companies who are foreclosing may not have any legal right to do so. That is, it’s not just that some servicers are sloppy and don’t bother with the note, it’s that some do not have the authority to foreclose at all!

3 Responses

  1. MY HOME WAS FORECLOSED ON IN SAN DIEGO CA NOW I AM BEEING EVICTED. I WENT TO THE COUNTYS RECORDER OFFICE TO FIND THE MY ORIGINAL LENDER TRUSTEE OR BENEFICIARY NEVER RECORDED A SUB OF TRUSTEE FOR LASALLE BANK TO ACT AS A TRUSTEE ALLOWING TD SERVICE COMPANY TO RECORDING A NOD ON BEHALF OF LASALEE BANK N,A TRUSTEE FOR MLMI TRUST SERIES 2007 HE3 AND MY SERVICER WILSHIRE BUT THEY DID NOT RECORD THE SUB OF TRUSTEE GIVING TD SERVING THE POWER UNTIL FEB 2008 3 MONTHS AFTER THE NOD WAS RECORDED ALSO THAT THE ATTORNEY IN FACT FOR THE SUB OF TRUSTEE LASALLE GRANTED TD SERVICING COMPANY IS FOR TRUST SERIES 2006 – HE3 AND NOT 2007-HE3 . ALSO THERE WAS A COPORATED ASSIGNMENT OF THE DEED OF TRUST RECORDED FEB 2008 3 MONTHS AFTER THE NOD OF DEFAULT NOV 2007 THE ADRESS PROVIDE ON THE ASSIGNMENT FOR LASALLE BANK IS FRAUD THE BULING HAS BEEN EMPTY FOR TWO YEARS AAND ON THE MARKET FOR LEASE ALSO ON THE ASSINGMENT THEY HAVE THE LENDER AS MY BENEFICIARY WHEN IT CLEARY STATES ON MY NOTE AND DEED OF TRUST MERS IS THE SOLE BENEFICIARY . I HAVE FILE A LAWSUIT TRYING TO GET BOTH CASES HEARD AT THE SAME TIME AND ALSO RECORDED A LIS PENDENS ON THE PROPERTY SHOULD I PRESENT ALL OF THIS AT THE EVICTION HEARING SHOULD THEY WANT TO PROCEED SHOWING THE COURTS THAT THEY NEVER HAD ANY RIGHT TO FORCLOSE CFSLOANSCLOSE@GMAIL.COM

  2. emc mortgage company said in my bankruptcy that they were the mortgagee and signed such stipulation, so did lasalle bank as holder of 40word asset back certif. now lasalle has filed a foreclosure saying they are holder, so i presented their bankuptcy coomenst as a defense and filed a prelim. objection for lack of standing i am in pa any suggestions?

  3. Commenting about Wells Fargo.

    I have a mortgage with them in NJ. They never recorded the mortgage, they knew it wasnt recorded in 2002 when the original forclosure proceeding was dimissed becuase of it, they are now taking me to court to have the mortgage recorded so they can start forclosure again.

    Do I have any chance of stopping them getting it recorded?

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