Hawaii Has Teeth


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Editor’s Comment: We are seeing more of these cases as the trial and appellate courts have finally come to earnestly question the validity of the foreclosures themselves. First they are starting with strict enforcement of required procedures.

In this case the 9th Circuit Court of Appeals reversed the BAP Panel and reinstated the finding that the pretender lender had violated Hawaii law. But they remanded as to the amount of attorneys fees and costs. That means they affirmed the violation of the pretender lender, they affirmed the consequences for such violation and affirmed the recovery of fees and costs. The Court specifically opened the door to monetary and punitive damages but refused to apply it as an automatic remedy, which in my opinion was a correct finding.

The proper course of action for this homeowner was to file a wrongful foreclosure claim (after rendition of this opinion), slander of title (perhaps) and other claims relating to monetary damages in which they prove and allege duty and damages proximately caused and measurable as a result of the violation of the pretender lender.

Just because you don’t read it or see it in mainstream media doesn’t mean it isn’t happening. Borrowers are starting to win with increasing frequency.

Hawaii 9th Circuit Case Margery Kanamu-Kalehuanani KEKAUOHA-ALISA v Ameriquest

“This case requires us to determine whether a mortgage company violated Hawaii state law when it did not publicly announce the postponement of a foreclosure sale of property owned by Appellant Margery Kanamu-Kalehuanani Kekauoha-Alisa, and if so, to ascertain the proper remedy for that violation. A federal bankruptcy court held that Appellees’ failure publicly to announce the foreclosure violated the requirements of Hawaii’s nonjudicial foreclosure procedure under Hawaii Revised Statute (HRS) § 667-5, as well as its consumer protection law, HRS § 480-2. The court voided the sale of the Appellant’s property and awarded her treble damages of $417,761.66 under HRS § 480-13 for violation of the consumer protection statute. The Bankruptcy Appellate Panel reversed, ruling that the mortgagee’s actions did not violate state law.

We hold that (1) the lack of public announcement did violate Hawaii’s nonjudicial foreclosure statute, and (2) this defect was a deceptive practice under state law. Accordingly, we affirm the bankruptcy court’s avoidance of the foreclosure sale. However, we remand to the bankruptcy court for a proper calculation of attorneys’ fees and damages under HRS § 480-13.”



The Reporter Who Saw it Coming

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Editor’s Comment:

By Dean Starkman

Mike Hudson thought he was merely exposing injustice, but he also was unearthing the roots of a global financial meltdown.

Mike Hudson began reporting on the subprime mortgage business in the early 1990s when it was still a marginal, if ethically challenged, business. His work on the “poverty industry” (pawnshops, rent-to-own operators, check-cashing operations) led him to what were then known as “second-lien” mortgages. From his street-level perspective, he could see the abuses and asymmetries of the market in a way that the conventional business press could not. But because it ran mostly in small publications, his reporting was largely ignored. Hudson pursued the story nationally, via a muckraking book, Merchants of Misery (Common Courage Press, 1996); in a 10,000-word expose on Citigroup-as-subprime-factory, which won a Polk award in 2004 for the small alternative magazine Southern Exposure; and in a series on the subprime leader, Ameriquest, co-written as a freelancer, for the Los Angeles Times in 2005. He continued to pursue the subject as it metastasized into the trillion-dollar center of the Financial Crisis of 2008—briefly at The Wall Street Journal and now at the Center for Public Integrity. Hudson, 52, is the son of an ex-Marine and legendary local basketball coach. He started out on rural weeklies, covering championship tomatoes and large fish and such, even produced a cooking column. But as a reporter for The Roanoke Times he turned to muckraking and never looked back. CJR’s Dean Starkman interviewed Hudson in the spring of 2011.

Follow the ex-employees

The great thing about The Roanoke Times was that there was an emphasis on investigation but there was also an emphasis on storytelling and writing. And they would bring in lots of people like Roy Peter Clark and William Zinsser, the On Writing Well guy. The Providence Journal book, the How I Wrote the Story, was a bit of a Bible for me.

As I was doing a series on poverty in Roanoke, one of the local legal aid attorneys was like, “It’s not just the lack of money—it’s also what happens when they try to get out of poverty.” He said basically there are three ways out: they bought a house, so they got some equity; they bought a car so they could get some mobility; or they went back to school to get a better job. And in every case, he had example after example of folks, who because they were doing just that, had actually gotten deeper in poverty, trapped in unbelievable debt.

His clients often dealt with for-profit trade schools, truck driving schools that would close down; medical assistant’s schools that no one hired from; and again and again they’d be three, four, five, eight thousand dollars in debt, and unable to repay it, and then of course prevented from ever again going back to school because they couldn’t get another a student loan. So that got me thinking about what I came to know as the poverty industry.

I applied for an Alicia Patterson Fellowship and proposed doing stories on check-cashing outlets, pawn shops, second-mortgage lenders (they didn’t call themselves subprime in those days). This was ’91. We didn’t have access to the Internet, but I came across a wire story about something called the Boston “second-mortgage scandal,” and got somebody to send me a thick stack of clips. It was really impressive. The Boston Globe and other news organizations were taking on the lenders and the mortgage brokers, and the closing attorneys, and on and on.

I was trying to make the story not just local but national. I had some local cases involving Associates [First Capital Corp., then a unit of Ford Motor Corp.]. Basically, it turned out that Ford Motor Company, the old-line carmaker, was the biggest subprime lender in the country. The evidence was pretty clear that they were doing many of the same kinds of bait-and-switch salesmanship and, in some cases, pure fraud, that we later saw take over the mortgage market. I felt like this was a big story; this is the one! Later, investigations and Congressional hearings corroborated what I was finding in ’94, ’95, and ’96. And it seems so self-evident now, but I learned that finding ex-employees often gives you a window into what’s really going on with a company. The problem has always been finding them and getting them to talk.

I spent the better part of the ‘90s writing about the poverty industry and about predatory lending. As a reporter you don’t want to be defined by one subject. So I was actually working on a book about the history of racial integration in sports, interviewing old Negro-league baseball players. I was really trying to change a little bit of how I was moving forward career-wise. But it’s like the old mafia-movie line: every time I think I’m out, they pull me back in.

Subprime goes mainstream

In the fall of 2002, the Federal Trade Commission announced a big settlement with Citigroup, which had bought Associates, and at first I saw it as a positive development, like they had nailed the big bad actor. I’m doing a 1,000-word freelance thing, but of course as I started to report I started hearing from people who were saying that this settlement is basically giving them absolution, and allowed them to move forward with what was, by Citi standards, a pretty modest settlement. And the other thing that struck me was the media was treating this as though Citigroup was cleaning up this legacy problem, when Citi itself had its own problems. There had been a big magazine story about [Citigroup Chief Sanford I.] “Sandy” Weill. It was like “Sandy’s Comeback.” I saw this and said, ‘Whoa, this is an example of the mainstreaming of subprime.’

I pitched a story about how these settlements weren’t what they seemed, and got turned down a lot of places. Eventually I went to Southern Exposure and called the editor there, Gary Ashwill, and he said, “That’s a great story, we’ll put it on the cover.” And I said, “Well how much space can we have?” and he said, “How much do we need?” That was not something you heard in journalism in those days.

I interviewed 150 people, mostly borrowers, attorneys, experts, industry people, but the stuff that really moves the story are the former employees. Many of them had just gotten fired for complaining internally. They were upset about what had gone on—to some degree about how the company treated them, but usually very upset about how the company had pressured them and their co-workers to mistreat their customers.

As a result of the Citigroup stuff, I got a call from a filmmaker [James Scurlock] who was working on what eventually became Maxed Out, about credit cards and student loans and all that kind of stuff. And he asked if I could go visit, and in some cases revisit, some of the people I had interviewed and he would follow me with a camera. So I did sessions in rural Mississippi, Brooklyn and Queens, and Pittsburg. Again and again you would hear people talk about these bad loans they got. But also about stress. I remember a guy in Brooklyn, not too far from where I live now, who paused and said something along the lines of: ‘You know I’m not proud of this, but I have to say I really considered killing myself.’ Again and again people talked about how bad they felt about having gotten into these situations. It was powerful and eye-opening. They didn’t understand, in many cases, that they’d been taken in by very skillful salesmen who manipulated them into taking out loans that were bad for them.

If one person tells you that story, you say okay, well maybe it’s true, but you don’t know. But you’ve got a woman in San Francisco saying, “I was lied to and here’s how they lied to me,” and then you’ve got a loan officer for the same company in suburban Kansas saying, “This is what we did to people.” And then you have another loan officer in Florida and another borrower in another state. You start to see the pattern.

People always want some great statistic [proving systemic fraud], but it’s really, really hard to do that. And statistics data doesn’t always tell us what happened. If you looked at some of the big numbers during the mortgage boom, it would look like everything was fine because of the fact that they refinanced people over and over again. So essentially a lot of what was happening was very Ponzi-like—pushing down the road the problems and hiding what was going on. But I was not talking to analysts. I was not talking to high-level corporate executives. I was not talking to experts. I was talking to the lowest level people in the industry— loan officers, branch managers. I was talking to borrowers. And I was doing it across the country and doing it in large numbers. And when you actually did the shoe-leather reporting, you came up with a very different picture than the PR spin you were getting at the high level.

One day Rich Lord [who had just published the muckraking book, American Nightmare: Predatory Lending and the Foreclosure of the American Dream, Common Courage Press, 2004) and I went to his house. We were sitting in his study. Rich had spent a lot of time writing about Household [International, parent of Household Finance], and I had spent a lot of time writing about Citigroup. Household had been number one in subprime, and then CitiFinancial/Citigroup was number one. This was in the fall of 2004. We asked, well, who’s next? Rich suggested Ameriquest.

I went back home to Roanoke and got on the PACER—computerized court records—system and started looking up Ameriquest cases, and found lots of borrower suits and ex-employee suits. There was one in particular, which basically said that the guy had been fired because he had complained that Ameriquest business ethics were terrible. I just found the guy in the Kansas City phone book and called him up, and he told me a really compelling story. One of the things that really stuck out is, he said to me, “Have you ever seen the movie Boiler Room [2000, about an unethical pump-and-dump brokerage firm]?”

By the time I had roughly ten former employees, most of them willing to be on the record, I thought: this is a really good story, this is important. In a sense I feel like I helped them become whistleblowers because they had no idea how to blow the whistle or what to do. And Ameriquest at that point was on its way to being the largest subprime lender. So, I started trying to pitch the story. While I had a full-time gig at the Roanoke Times, for me the most important thing was finding the right place to place it.

The Los Angeles Times liked the story and teamed me with Scott Reckard, and we worked through much of the fall of 2004 and early 2005. We had thirty or so former employees, almost all of them basically saying that they had seen improper, illegal, fraudulent practices, some of whom acknowledged that they’d done it themselves: bait-and-switch salesmanship, inflating people’s incomes on their loan applications, and inflating appraisals. Or they were cutting and pasting W2s or faking a tax return. It was called the “art department”—blatant forgery, doctoring the documents. You know, it was pretty eye-opening stuff. One of the best details was that many people said they showed Boiler Room—as a training tape! And the other important thing about the story was that Ameriquest was being held up by politicians, and even by the media, as the gold standard—the company cleaning up the industry, reversing age-old bad practices in this market. To me, theirs was partly a story of the triumph of public relations.

Leaving Roanoke

I’d been in Roanoke almost 20 years as a reporter, and so, what’s the next step? I resigned from the Roanoke Times and for most of 2005 I was freelancing fulltime. I made virtually no money that year, but by working on the Ameriquest story, it helped me move to the next thing. I interviewed with The Wall Street Journal [and was hired to cover the bond market]. Of course I came in pitching mortgage-backed securities as a great story. I could have said it with more urgency in the proposal, but I didn’t want to come off as like an advocate, or half-cocked.

Daily bond market coverage is their bread-and-butter, and it’s something that needs to be done. And I tried to do the best I could on it. But I definitely felt a little bit like a point guard playing small forward. I was doing what I could for the team but I was not playing in a position where my talents and my skills were being used to the highest.

I wanted to do a documentary. I wanted to do a book [which would become The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America—and Spawned a Global Crisis, Times Books, 2010]. I felt like I had a lot of information, a lot of stuff that needed to be told, and an understanding that many other reporters didn’t have. And I could see a lot of the writing focused on deadbeat borrowers lying about their income, rather than how things were really happening.

Through my reporting I knew two things: I knew that there were a lot of predatory and fraudulent practices throughout the subprime industry. It wasn’t isolated pockets, it wasn’t rogue lenders, it wasn’t rogue employees. It was really endemic. And I also knew that Wall Street played a big role in this, and that Wall Street was driving or condoning and/or profiting from a lot of these practices. I understood that, basically, the subprime lenders, like Ameriquest and even like Countrywide, were really just creatures of Wall Street. Wall Street loaned these companies money; they then made loans; they off-loaded the loans to Wall Street; Wall Street then sold them [as securities to investors]. And it was just this magic circle of cash flowing. The one thing I didn’t understand was all the fancy financial alchemy—the derivatives, the swaps, that were added on to put them on steroids.

It’s clear that people inside a company, one or two or three people, could commit fraud and get away with it, on occasion, despite the best efforts of a company. But I don’t think it can happen in a widespread way when a company has basic compliance systems in place. The best way to connect the dots from the sleazy practices on the ground to people at high levels was to say, okay, they did have these compliance people in place; they had fraud investigators, loan underwriters, and compliance officers. Did they do their jobs? And if they did, what happened to them?

In late 2010, at the Center for Public Integrity, I got a tip about a whistleblower case involving someone who worked at a high level at Countrywide. This is Eileen Foster, who had been an executive vice president, the top fraud investigator at Countrywide. She was claiming before OSHA that she was fired for reporting widespread fraud, but also for trying to protect other whistleblowers within the company who were also reporting fraud at the branch level and at the regional level, all over the country. The interesting thing is that no one in the government had ever contacted her! [This became “Countrywide Protected Fraudsters by Silencing Whistleblowers, say Former Employees,” September 22 and 23, 2011, one of CPI’s best-read stories of the year; 60 Minutes followed with its own interview of Foster, in a segment called, “Prosecuting Wall Street,” December 14, 2011.] It was very exciting. We worked really hard to do follow-up stories. I did about eight stories afterward, many about General Electric, a big player in the subprime world. We found eight former mortgage unit employees who had tried to warn about abuses and whom management had shunted aside.

I just feel like there needs to be more investigative reporting in the mix, and especially more investigative reporting—of problems that are going on now, rather than post-mortems or tick-tocks about financial disasters or crashes or bankruptcies that have already happened.

And that’s hard to do. It takes a real commitment from a news organization, and it can be a high-wire thing because you’re working on these stories for a long time, and market players you’re writing about yell and scream and do some real pushback. But there needs to be more of the sort of early warning journalism. It’s part of the big tent, what a newspaper is.

Banks Slammed for Misrepresenting Themselves as Owners of the Loan


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2008 Legal Memo at BKR Conference

Cautions Banks and Lawyers Against Lying About Ownership

A legal compendium of cases published by the American Bankruptcy Institute establishes a pattern of conduct by Ameriquest, Wells Fargo and Chase dating back before 2008 in which these and other banks have intentionally misrepresented themselves to the court as owners of the note, entitled to foreclose and seeking to lift the automatic stay in bankruptcy court under “color of title” arguments. The link to the entire article is below.

What I see is not just wrongful conduct in court but a continuous pattern of lying, fabricating, forging and cheating that has left millions of homeowners without possession of their rightful homes. The ONLY REMEDY in my opinion is to restore these homes to the bankruptcy estate and that the debtor’s be allowed to assert claims attacking the supposed mortgage liens that were based upon false identification of the lender, false and predatory figures used in borrowing and servicing and a large shroud thrown over the entire fictitious securitization process as a place to hide an illegal scheme to issue multiple securities in which the borrower was the issuer of the promissory note under false pretenses and the REMIC was carefully constructed to issue bogus mortgage bonds.

In both cases, the issuer and the investor were dealing with participants in the securitization chain who had no intention of allowing them to keep or recover their investment. In both cases, the instrument was a security that did NOT fall under the exemptions previously used to protect the banks. The borrower as issuer was induced to enter into a securities transaction in which he purchased a loan product under the false assumption created and promoted by the Banks that the real estate market never went down and would always go up, thus allaying the borrowers’ fear that the loan was not affordable. In fact that loan was not affordable and would violate the affordability guidelines in TILA and RESPA if it was classified as a residential mortgage loan. The REMIC that issued the bonds did so without any assets, and even though the disclosure was in the prospectus buried in parts where one would not be looking for that risk, that fact alone removes the REMIC issuance as a REMIC under the Internal Revenue Code, and removes the issuance of the mortgage bond from the cover of exemption under the 1998 Act.

We have all seen Wells Fargo, BOA, Chase, US Bank, Ameriquest and others banged repeatedly fro misrepresenting themselves in court as the owner of the loan when in fact they were not the owner of the loan, never loaned the money to begin with and never purchased the loan obligation from anyone because no money exchanged hands. Even if they tried, the only party who could sell or release claims to the receivable from the “borrower” (issuer) would have been the partnership or individuals or as a group pooled their money into leaky, fictitious entities created for the express purpose of deceiving the pension funds and other investors.

The bottom line is that when it suits them (when they want the property, in addition to the unearned insurance payments, proceeds of credit default swaps and proceeds from other credit enhancements and federal bailouts) these banks assert falsely that they are the creditor, claiming the losses that trigger payments to them rather than the investor. When it does not suit them, like when they abandon the property, or are subject to imposition of fees, sanctions or fines or attorney fees, then they finally fess up and state that they are not the owner of the loan in order to avoid paying appropriate costs, fines, fees, penalties and fees.

Here are some of the notable quotes from the piece written by Catherine V Eastwood, Esq., of Partridge, Snow and Hahn, LLP. At some point the lawyers must be subjected to the same sanctions knowing in the public domain that these practices exist as a pattern of conduct. see Consumer_Sept_2008_NE08_Messing_Mortgages_Cases


Make Sure Your Pleading Contains Accurate Information Regarding The Identity Of The Real Party In Interest
[AMERIQUEST FINED $250,000, LAW FIRM FINED $25,000, WELLS FARGO FINED $250,000 FOR A TOTAL OF $525,000] On April 25, 2008, Judge Rosenthal issued an memorandum of decision regarding an order to show cause why sanctions should not be imposed in the matter of Nosek v. Ameriquest Mortgage Company, 2008 Bankr. LEXIS 1251 (Bankr. D. Mass. 2008). Ameriquest had maintained throughout a prior adversary proceeding and bankruptcy case that it was the “holder” of the note and mortgage. When the debtor filed a second adversary proceeding requesting trustee process from two Chapter 13 Trustees to collect payment on the judgment issued in the prior case, Ameriquest argued that it was merely the servicer of the loans and that it was not the owner of the funds sought to be collected. The court noted that Ameriquest and its attorneys had made misrepresentations to the court throughout the prior proceedings regarding its status as noteholder. Wells Fargo, NA as Trustee for Amresco Residential Securities Corp. Mortgage Loan Trust, Series 1998-2 was the real holder of the note. The Court issued a Notice to Show Cause why sanctions should not be imposed

Make Sure Your Pleading Contains Accurate Financial Information or Fed. R. Bankr. P. 9011 May Be Imposed: Judge Bohm asked counsel why a motion from relief from stay was being withdrawn. The lawyer’s answer resulted in the judge issuing two show cause orders in In re Parsley, 2008 Bankr. LEXIS 593 (Bankr. S.D. Texas 2008). The real answer should have been that the motion for relief was filed in error on account of an erroneous payment history. Unfortunately, counsel misrepresented to the court that it was a “good motion” and that set off an explosion, leading to evidence of other misrepresentations…. Testimony also revealed that the payment histories were prepared by paralegals and were not reviewed by any attorneys. Countrywide did not review the loan histories either. No one was catching the errors under this system. Judge Bohm wrote “what kind of culture condones its lawyers lying to the court and then retreating to the office hoping that the Court will forget about the whole matter.”

[$75,000 Sanction against Law Firm] In an earlier matter, also in the Southern District of Texas, the Court sanctioned a law firm in the amount of $75,000 for filing an objection to plan and subsequent withdrawal of the objection that was deemed to be “gibberish.”    In re Allen, 2007 Bankr. LEXIS 2063 (Bankr. S.D. Texas 2007). It was clear to the Court that the pleadings were not being reviewed by an attorney after being generated by a computer as the objection listed reasons that were completely unrelated or blatantly opposite of the contents of the Chapter 13 plan filed by the debtor.

[Chase required to pay legal fees of debtor] On April 10, 2008, Judge Morris, a bankruptcy court judge for the Southern District of New York, issued a decision in the case of In re Schuessler, 2008 Bankr. LEXIS 1000 (Bankr. S.D. NY. 2008) regarding an order to show cause why Chase Home Finance, LLC should not be sanctioned for submitting pleadings that were misleading and that had no factual support.

Standing Challenges: Make Sure The Company Bringing The Action Has The Legal Right To Do So
[RELIEF FROM STAY DENIED RETROACTIVELY ON DEBTOR’S MOTION] In re Schwartz, 366 BR 265 (Bankr. D. Mass. 2007) that parties who do not hold the note or mortgage and who do not service the mortgage do not have standing to pursue motions for relief or other actions arising out of the mortgage obligation. In Schwartz the creditor was seeking relief to pursue an eviction action following a foreclosure sale. The assignment of mortgage into the foreclosing mortgagee was executed four days after the foreclosure sale took place. The Court stated that while the term “mortgagee”, as used in M.G.L. c. 244 §1, “has been defined to include assignees of a mortgage, there is nothing to suggest that one who expects to receive the mortgage by assignment may undertake any foreclosure activity.” Id. at 269. The motion for relief was denied.
While not a bankruptcy court case, a United States District Court case worthy of inclusion in this section is In re Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio 2007). The District Court issued an order covering numerous foreclosure cases that were pending in the state. The creditor was ordered by the Court to produce evidence that the named plaintiff was the holder and owner of the note and mortgage as of the date the foreclosure complaint was filed. The court dismissed the foreclosure complaints when the lenders were unable to produce the assignments.
How Many Times Can A Lender Continue a Foreclosure Sale?
In re Soderman, 2008 Bankr. LEXIS 384 (Bankr. D. Mass. 2008). In Soderman the court recited the “one-time” postponement blessing in order to seek relief from stay but that repeated continuances may be a violation of the automatic stay.    The repeated continuances will be deemed a violation of the stay if the postponements are made in order to harass the debtor, gain an advantage for the creditor or renew the financial strain that led the debtor to file for bankruptcy protection. Id.    One month after the decision in Soderman was released, Judge Hillman also ruled that repeated continuances of a foreclosure sale was a violation of the automatic stay. In re Lynn-Weaver, 2008 Bankr. LEXIS 1101 (Bankr. D. Mass 2008).
Challenging the Assessment of Mortgage Fees to a Loan and the United States Trustee’s Office’s Investigation of Countrywide Home Loans, Inc.
In an unprecedented move, Judge Agresti of the Pennsylvania Bankruptcy Court, in April 2008, approved the Justice Department’s further investigation of Countrywide due to widespread allegations that the lender is filing false or inaccurate claims, misapplying funds, assessing unreasonable fees to borrowers’ accounts or ignoring the discharge injunction and other court orders. Countrywide Homes Loans, Inc. f/k/a Countrywide Funding Corp., 2008 Bankr. LEXIS 1023 (Bankr. W.D. PA. 2008).
This matter was precipitated by a Standing Chapter 13 Trustee in Pennsylvania originally filing for sanctions against Countrywide Home Loans, Inc. due to her experience with the lender
The Pennsylvania matters have led the United States Trustee’s Office to file similar suits in Georgia1 and Ohio2 seeking to investigate the servicing practices of Countrywide. Various subpoenas have also been served by the United States Trustee’s office upon Countrywide in Florida regarding the assessment of fees on borrower’s accounts.

1 The United States Trustee’s Office filed a complaint on February 28, 2008 styled as Walton v. Countrywide Home Loans, Inc.,08-06092-mhm in the Northern District of Georgia. The related bankruptcy case is In re Atchley, 05- 79232-mhm. In Atchley, the homeowners eventually sold their home to avoid foreclosure but believe the payoff amount cited by Countrywide contained excessive fees and that Countrywide continued to accept trustee payments after the loan paid off.
2    The United States Trustee’s Office filed a complaint on February 28, 2008 styled as Fokkena v. Countrywide Homes Loans, Inc., 08-05031-mss in the Northern District of Ohio. The related bankruptcy case is In re O’Neal, 07- 51027. In O’Neal, Countrywide filed a proof of claim and objection to plan when it had already accepted a short sale on the property prior to the bankruptcy filing.

[Forensic Audits Suggested — $10,000 damages, $12,350 Legal Fees, Wells Fargo sanctioned $5000] in the matter of In re Dorothy Stewart Chase, Docket 07-11113, Chapter 13 (Bankr. E.D. LA 2008), Judge Magner issued a 49 page decision on April 10, 2008 which ordered Wells Fargo to audit every proof of claim it filed in the district since April 13, 2007 and to provide a complete loan history on every account. If the audits reveal additional concerns, the judge reserved the right to appoint experts to do forensic accountings at the expense of Wells Fargo. She also ruled that Wells Fargo was negligent in the loan servicing of Ms. Chase’s loan and assessed damages of $10,000, legal fees of $12,350 and sanctioned Wells Fargo $5,000 for filing a consent order that did not reflect the agreement of the parties and for filing erroneous proofs of claim.
[Wells sanctioned $67,202.45] The decision in Chase was on the heels of Judge Magner’s earlier decision in In re Jones, 2007 Bankr. LEXIS 2984 (Bankr. E.D. LA. 2007). In Jones, Judge Magner sanctioned Wells Fargo $67,202.45 for violating the order of confirmation and the automatic stay by improperly assessing the debtor’s loan with fees in the amount of $16,852.01 and diverting payments made by the Chapter 13 trustee and the Debtor to satisfy fees that had not been authorized by the Court. The judge stated that the Jones case would provide guidance in the post-petition administration of home mortgage loans to a degree that, until this decision issued, had been lacking in the industry.

“Keep your fingers crossed but I think we will price this just before the market falls off a cliff,” a Deutsche Bank manager wrote in February 2007

Internal emails indicate Deutsche Bank knew they were bankrolling toxic mortgages by Ameriquest and others

Internal emails indicate Deutsche Bank knew they were bankrolling toxic mortgages by Ameriquest and others


In 2007, the report says, Deutsche Bank rushed to sell off mortgage-backed investments amid worries that the market for subprime loans was deteriorating.

“Keep your fingers crossed but I think we will price this just before the market falls off a cliff,” a Deutsche Bank manager wrote in February 2007 about a deal stocked with securities created from raw material produced by Ameriquest and other subprime lenders.

Deutsche Bank Analyst: Overpay For Our Assets, Or You’ll Regret It

By Zachary Roth – February 12, 2009, 3:49PM

For a while now, it’s seemed like Wall Street’s message to government has been: We screwed up. But if you don’t rescue us on our terms, you’re all gonna be in trouble.

But you don’t usually see that expressed quite as clearly as it was in a research memo sent out yesterday by a senior Deutsche Bank analyst, and obtained by TPMmuckraker.

In the memo — one of Deutsche’s daily “Economic Notes” sent out to the firm’s clients, and to some members of the press — Joseph LaVorgna, the bank’s chief US economist, essentially, appears to warn that if the government doesn’t pay high prices for the toxic assets on the books of Deutsche and other big firms, there will be massive consequences for the US economy.

Writes LaVorgna:

One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the
economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives.

We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.

One leading economist described the memo to TPMmuckraker as a “ransom note” to the US government. And David Kotok of Cumberland Advisors, who writes such research memos for his own clients, acknowledged that the memo, like all such communications, could be interpreted as an attempt to influence policy-makers.

Still, seeing the memo as a threat to the government to drive the softest of bargains wouldn’t be entirely fair. Kotok that cautioned that the effects of a single analyst’s memo are limited: “Joe LaVorgna doesn’t have enough clout to hold the US government hostage.”

LaVorgna himself was blunt: “I don’t write editorials,” he told TPMmuckraker.

At the very least, the memo can be seen as a frank statement of position from the chief economist of a major bank: if the government doesn’t cave and buy up all the banks’ toxic assets at inflated prices, the country will suffer.

Nice fix we’ve got ourselves into.

This RMBS “Trust” has quit reporting to the SEC in 2007

Here is a direct link to this particular “Trust”…


The PSA is contained within the 330 page Prospectus (424B5). I have not found any of the other relevant “Purchase Agreements” …

This “Trust” has quit reporting to the SEC in 2007 yet is still actively providing monthly payments to the Investors according to the Deutsche Bank Investor Site:


1. Click on RMBS on the left side…

2. Click on Ameriquest…

3. Click on Ameriquest Mortgage Securities…

4. Click on 2006-R1

There you will find ALL monthly reports/statements for this “Trust” Deutsche is claiming to be “Trustee” of.

This is still an “Active” Trust without having any oversight by the SEC!!!

On a Side Note, I have also discovered today that when we filed our “Quiet Title” action in October 2009, our “Attorney” never even recorded a Lis Pendens which would have prevented them from even completing and recording the Sheriff Sale Certificate…he told me it “wasn’t needed”.

Any thoughts???

Rescission: Equitable Estoppel Validated in 2006 Case

a special relationship may exist between defendants, who possess specialized knowledge and experience in the field of mortgage refinance, and plaintiff, a homeowner without any training or education in mortgage refinance. Based upon the parties’ vast difference in knowledge, there are issues of fact whether plaintiff’s reliance on defendants’ misrepresentations was justified. (See Fresh Direct, LLC v. Blue Martine Software, Inc., 7 AD3d 487 [2nd Dept. 2004].)

Smith v Ameriquest Mtge. Co.
2006 NY Slip Op 52707(U) [25 Misc 3d 1230(A)]
Decided on September 18, 2006
Supreme Court, Queens County
Agate, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 18, 2006

Supreme Court, Queens County

Maudline Smith, Plaintiff,


Ameriquest Mortgage Company, Nationscredit Financial Services Corporation, Jason Simms, Daniel Chan, Mark Lindenmann and Neville Golding, Defendants.


Augustus C. Agate, J.

Plaintiff commenced this action for rescission of mortgage loans between plaintiff and defendants Ameriquest Mortgage Company (hereinafter referred to as “Ameriquest”) and Nationscredit Financial Services Corporation as successor-by-merger to EquiCredit of NY (hereinafter referred to as “EquiCredit”), and for compensatory and punitive damages against all defendants.

Plaintiff was the owner of residential property located at 105-20 Farmers Boulevard, Hollis, Queens, which was secured by a mortgage held by Household Finance Realty Corporation of New York (hereinafter referred to as “HFRC”) from September 25, 1996 through March 11, 1998. In 1998, plaintiff spoke with defendant Jason Simms, an employee of HFRC, who discussed refinancing her mortgage. Although plaintiff declined at that time, she later agreed to refinance her mortgage through Simms’ new employer Ameriquest. Plaintiff entered into an agreement with Ameriquest, who paid her mortgage with HFRC and established a new mortgage in the amount of $137,250 at 10.5% interest, and a $20,000 mortgage with defendant EquiCredit at 9.8% interest. This new mortgage also transferred a 1% interest in plaintiff’s property to defendant Neville Golding. The closing for these mortgages took place on March 11, 1998, with defendant Daniel Chan, who represented Ameriquest.

On March 14, 1998, plaintiff signed a notice of right to cancel the mortgage, but later reinstated the mortgage on March 16, 1998. However, plaintiff became unable to make the payments [*2]on the mortgage and on December 20, 2002, commenced this action for rescission of the mortgage and to recover damages. On July 15, 2004, Ameriquest commenced a foreclosure action against plaintiff.

Defendants Ameriquest, Simms and Mark Lindemann move for summary judgment and dismissal of plaintiff’s Complaint, arguing that plaintiff cannot as a matter of law proceed on her claims. Defendants argue that all of plaintiff’s claims are based upon oral statements she alleges occurred with defendants. However, the Statute of Frauds precludes oral modification of the written mortgage agreement between the parties. Further, plaintiff’s claims are belied by defendants’ evidence, including documents plaintiff received prior to closing detailing the terms of the mortgage. Therefore, plaintiff had an opportunity to address her concerns prior to closing, but failed to do so and accepted the terms of the mortgage by signing defendants’ papers.

Plaintiff’s claim of fraud should be dismissed because there were no material misrepresentations upon which plaintiff relied to her detriment. Rather, plaintiff was familiar with the process of refinancing a mortgage, as she had done numerous times in the past. She had a duty to read the loan documents and signed the written disclosures demonstrating her knowledge and acceptance of the mortgage terms. Further, any oral misrepresentations cannot be asserted to invalidate the contract under the Statute of Frauds. Plaintiff’s claim of negligent misrepresentation should be dismissed because there was no special relationship between plaintiff and defendants upon which plaintiff can present a valid cause of action. Plaintiff’s claim of promissory estoppel should be dismissed because there was no unconscionable injury that would permit recovery under this theory. Plaintiff’s claim of punitive damages should be dismissed because there was no evidence of egregious conduct by defendants aimed at the public. There is also no evidence to impute liability on Ameriquest or its employee Lindemann for the alleged tortious actions of Simms. Plaintiff cannot rescind the mortgage under the Truth in Lending Act (hereinafter referred to as “TILA”) because the statute of repose has expired. Further, plaintiff is unable to repay the principal amount to permit rescission of the mortgage. Plaintiff’s claim of civil conspiracy must be dismissed based upon prior court decisions in this matter where the Court held that there is no independent cause of action for civil conspiracy.

Plaintiff opposes defendants’ motion and cross moves for partial summary judgment. Plaintiff argues that defendants’ motion should be dismissed because there is no affidavit of merit from defendant Simms as to the facts in this case. There are also issues of fact that preclude summary judgment, particularly since discovery is outstanding. Further, defendants failed to properly authenticate their exhibits, as none of the affiants had sufficient knowledge of the business practices necessary to authenticate the documents.

Plaintiff argues that punitive damages are warranted against Ameriquest, who recently settled a class action suit for predatory lending practices. Plaintiff’s affidavit of merit described the events between the parties and how they form the basis of plaintiff’s Complaint. Plaintiff states that she only refinanced her mortgage in order to receive a lower monthly payment, consolidate her bills and receive $10,000. While she intended for defendant Golding to co-sign her mortgage, she did not agree to transfer 1% ownership interest in her property to him. She also did not agree to a mortgage with EquiCredit, nor was she aware that EquiCredit was part of the mortgage with Ameriquest. At [*3]the closing, there were no lawyers but merely an unidentified man and defendant Chan. Plaintiff was uncomfortable with the closing and purposely failed to date her signature, expecting that to invalidate the mortgage. When it did not, she signed a notice of cancellation of mortgage. However, she spoke with Simms, who assured her that the $10,000 check was being sent to her and that she could not receive it unless she reinstated her loan. She then reinstated the loan but quickly discovered that her monthly payments were higher than her original mortgage. She was unable to pay the higher mortgage payments and also never received any check for $10,000 or even $2,233.04, as claimed by defendants.

Plaintiff also argues that her claim of fraud is valid, as defendants misrepresented the balloon payment she must make to EquiCredit, they failed to pay plaintiff $10,000 as promised, and failed to inform her that her monthly mortgage payments would be higher than they had been under the mortgage with HFRC. Based upon the facts are presented, defendants’ motion for summary judgment should be denied and plaintiff’s cross-motion for rescission of the mortgage should be granted.

Defendant EquiCredit cross-moves dismissing plaintiff’s fourth cause of action for civil conspiracy[FN1]. Equicredit argues that plaintiff is not an unsophisticated homeowner, but had a long history of borrowing or mortgaging her property. Further, the court has already determined that there is no independent cause of action for civil conspiracy in the decisions dated September 9, 2003 by Justice Golar and by this court on June 9, 2006.

The proponent of a motion for summary judgment carries the initial burden of presenting sufficient evidence to demonstrate as a matter of law the absence of a material issue of fact. (Alvarez v. Prospect Hospital, 68 NY2d 320 [1986].) Once the proponent has met its burden, the opponent must now produce competent evidence in admissible form to establish the existence of a triable issue of fact. (See Zuckerman v. City of New York, 49 NY2d 557 [1980].) It is well settled that on a motion for summary judgment, the court’s function is issue finding, not issue determination. (Sillman v. Twentieth Century-Fox Film Corp., 3 NY2d 395 [1957]; Pizzi by Pizzi v. Bradlee’s Div. of Stop & Shop, Inc., 172 AD2d 504, 505 [2nd Dept. 1991].) However, the alleged factual issues must be genuine and not feigned. (Gervasio v. DiNapoli, 134 AD2d 235 [2nd Dept. 1987].)

Defendants Ameriquest, Simms and Lindemann’s motion for summary judgment is granted in part and denied in part. Defendants’ motion for summary judgment is granted as to defendant Lindemann, as there has been no evidence presented that he engaged in any tortious activity. Rather, it is undisputed that any involvement by Lindemann took place subsequent to the mortgage and is insufficient to impute liability on him. As plaintiff failed to oppose this branch of defendants’ motion or present any evidence that Lindemann engaged in tortious conduct that damaged her, summary judgment is warranted as to Lindemann.

Ameriquest and Simms’ motion and EquiCredit’s cross-motion for summary judgment as to [*4]civil conspiracy is granted. This Court has already determined that no independent cause of action for civil conspiracy exists. (See Monsanto v. Electronic Data Systems Corp., 141 AD2d 514 [2nd Dept. 1988].) Plaintiff’s arguments to support this cause of action are without merit, as the law of the case requires dismissal of this claim.

Defendants’ motion for summary judgment as to fraud is denied, as there are issues of fact in dispute. Defendants failed to present a prima facie case of entitlement to summary judgment by failing to submit an affidavit from defendant Simms, the defendant who clearly possessed the most information with regard to the communications between plaintiff and defendants. (See Hirsch v. Hirsch, 134 AD2d 485 [2nd Dept. 1987].) The affidavits of merit submitted do not address the factual questions with regard to solicitation of plaintiff to refinance and the circumstances of the closing. While defendants argue that the written documentation precludes any recovery for fraud by plaintiff, there are significant issues of fact with regard to the circumstances of the closing, who appeared on behalf of defendants, and the understanding between the parties, that precludes summary judgment. (See Joy v. Brower, 107 AD2d 1028 [4th Dept. 1985];Bankers Trust Co. of California v. Payne, 188 Misc 2d 726 [Sup. Kings 2001].)

Defendants’ motion for summary judgment as to negligent misrepresentation is denied. To recover on a theory of negligent misrepresentation, plaintiff must establish that defendants had a duty to use reasonable care to impart correct information because of some special relationship between the parties, that the information was incorrect or false, and that plaintiff reasonably relied upon the information provided. (Grammar v. Turits, 271 AD2d 644 [2nd Dept. 2000].) Defendants presented a prima facie case that there was no special relationship between plaintiff and defendants to support a claim of negligent misrepresentation, as this was a mere financial transaction between the parties that plaintiff had engaged in previously. (See Burroughs Corp. v. Datacap, Inc., 124 AD2d 622 [2nd Dept. 1986].) However, plaintiff raised an issue of fact in dispute, as she stated that she was promised $10,000 from and a consolidation of her bills if she refinanced with defendants. As defendants failed to present an affidavit of merit regarding the factual representations made by Simms on behalf of Ameriquest, there are issues of fact as to whether any false statements were made by defendant that were relied upon by plaintiff. Further, a special relationship may exist between defendants, who possess specialized knowledge and experience in the field of mortgage refinance, and plaintiff, a homeowner without any training or education in mortgage refinance. Based upon the parties’ vast difference in knowledge, there are issues of fact whether plaintiff’s reliance on defendants’ misrepresentations was justified. (See Fresh Direct, LLC v. Blue Martine Software, Inc., 7 AD3d 487 [2nd Dept. 2004].)

Defendants’ motion for summary judgment as to promissory estoppel is denied. The purpose of invoking the doctrine of equitable estoppel is to prevent the infliction of unconscionable injury and loss upon a plaintiff who has relief upon a defendant’s promise. (American Bartenders School, Inc. v. 105 Madison Co., 59 NY2d 716 [1983].) In this matter, there are issues of fact with regard to the propriety of defendants’ actions in soliciting the mortgage that preclude summary judgment. Specifically, if plaintiff can demonstrate that defendants knowingly and consciously defrauded her into signing a mortgage that she could not pay, then the loss of her residential property could be [*5]considered an unconscionable injury. (See Skillgames, LLC v. Brody, 1 AD3d 247 [1st Dept. 2003].) While plaintiff bears a heavy burden to prove this cause of action, the presence of issues of fact require denial of summary judgment.

Defendants’ motion for summary judgment as to punitive damages is denied as to Ameriquest and Simms. Punitive damages may be awarded when there is evidence that defendants’ fraud was aimed at the public generally, was gross and involved a high moral culpability. (See Crispino v. Greenpoint Mortg. Corp., 2 AD3d 478 [2nd Dept. 2003]; Guardian Mortg. Acceptance Corp. v. Bankers Trust Co., 259 AD2d 358 [1st Dept. 1999].) Plaintiff’s claims against defendants involve defendants’ actions in soliciting mortgages to unsuspecting customers, as there has never been any claim that defendants acted with a personal animus against plaintiff. Should plaintiff prevail on her claims, she may be entitled to punitive damages based upon the evidence with regard to predatory lending and soliciting practices.

Defendants’ motion for summary judgment as to rescission of the mortgages is granted. Rescission is an equitable doctrine designed to return the parties to the status held prior to the agreement. As a doctrine rooted in equity, the court may condition plaintiff’s right of rescission upon her tender to defendants of the principal of the loan. (Berkeley Federal Bank & Trust, FSB v. Siegal, 247 AD2d 498 [2nd Dept. 1998].)As plaintiff admits she is unable to repay the mortgages to place the parties in their original positions, rescission is not warranted.

Plaintiff’s motion for partial summary judgment is denied, as plaintiff failed to present sufficient evidence to determine as a matter of law that there are no issues of fact in dispute. Plaintiff did not specifically state the grounds for summary judgment, nor did she present sufficient evidence to award her summary judgment on any of her causes of action.

Accordingly, Ameriquest Mortgage Company, Jason Simms and Mark Lindemann’s motion for summary judgment and dismissal is granted as to Mark Lindemann, and all causes of action relating to Lindemann are dismissed. Ameriquest and Simm’s motion for summary judgment is granted as to plaintiff’s fourth cause of action for civil conspiracy, but denied as to plaintiff’s first, second and third causes of action for fraud, negligent misrepresentation and promissory estoppel and for punitive damages. Plaintiff’s cross-motion for partial summary judgment is denied. Defendant EquiCredit’s motion for summary judgment and dismissal of plaintiff’s fourth cause of action is granted.

Dated:September 18, 2006


Augustus C. Agate, J.S.C.


Footnote 1:Equicredit also cross-moved to compel depositions at the courthouse, but later submitted a letter withdrawing its request.

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