Unconscionable and Negligent Conduct in Loan Modification Practices

JOIN US EVERY THURSDAY AT 6PM Eastern time on The Neil Garfield Show. We will discuss the Stenberger decision and other important developments affecting consumers, borrowers and banks. We had 561 listeners so far who were on the air with us or who downloaded the show. Thank you — that is a good start for our first show. And thank you Patrick Giunta, Esq. (Broward County Attorney) as our first guest. For more information call 954-495-9867.

In the case of Wane v. Loan Corp. the 11th Circuit struck down the borrower’s attempt to rescind. The reasoning in that case had to do with whether the originator was the real lender. I think, based upon my review of that and other cases, that the facts were not totally known and perhaps could have been and then included in the pleading. It is one thing to say that you don’t think the originator actually paid for the loan. It is quite another to say that a third party did actually pay for the loan and failed to get the note and mortgage or deed of trust executed properly to protect the real source of funds. In order to do that you might need the copy of the wire transfer receipt and wire transfer instructions and potentially a forensic report showing the path of “securitization” which probably never happened.

The importance of the Steinberger decision (see prior post) is that it reverts back to simple doctrines of law rather the complexity and resistance in the courts to apply the clear wording in the Truth in Lending Act. The act says that any statement indicating the desire to rescind within the time limits set forth in the statute is sufficient to nullify the mortgage or deed of trust by operation of law unless the alleged creditor/lender files an action within the prescribed time limits. It is a good law and it covers a lot of the abuses that we see in the legal battleground. But Judges are refusing to apply it. And that includes Appellate courts including the 9th Circuit that wrote into the statute the requirement that the money be tendered “back to the creditor” in order for the rescission to have any legal effect.

The 9th Circuit obviously is saying the they refuse to abide by the statute. The tender back to the creditor need only be a statement that the homeowner is prepared to execute a note and mortgage in favor of the real lender. To tender the money “back” to the originator is to assume they made the loan, which ordinarily was not the case. The courts are getting educated but they are not at the point where they “get it.”

But with the Steinberger decision we can get similar results without battling the rescission issue that so far is encountering nothing but resistance. That case manifestly agrees that a borrower can challenge the authority of those who are claiming money from him or her and that if there are problems with the mortgage, the foreclosure or the modification program in which the borrower was lured into actions that caused the borrower harm, there are damages for the “lender” to pay. The recent Wells Fargo decision posted a few days ago said the same thing. The logic behind that applies to the closing as well.

So lawyers should start thinking about more basic common law doctrines and use the statutes as corroboration for the common law cause of action rather than the other way around. Predatory practices under TILA can be alleged under doctrines of unconscionability and negligence. Title issues, “real lender” issues can be attacked using common law negligence.

Remember that the common allegation of the “lenders” is that they are “holders” — not that they are holders in due course which would require them to show that they paid value for the note and that they have the right to enforce it and collect because the money is actually owed to them. The “holders” are subject to claims detailed in the Steinberger decision without reference to TILA, RESPA or any of the other claims that the courts are resisting. As holders they are subject to all claims and defenses of the borrower. And remember as well that it is a mistake to assume that the mortgage or deed of trust is governed by Article 3 of the UCC. Security instruments are only governed by Article 9 and they must be purchased for value for a party to be able to enforce them.

All of this is predicated on real facts that you can prove. So you need forensic research and analysis. The more specific you are in your allegations, the more difficult it will be for the trial court to throw your claims and defenses out of court because they are hypothetical or too speculative.

Question: who do we sue? Answer: I think the usual suspects — originator, servicers, broker dealer, etc. but also the closing agent.

Message on the Forensic TILA Analysis — It’s a Lot More Than it Appears

Featured Product by The Garfield Firm

For Customer Service call 1-520-405-1688
—————————————————————————–

No doubt some of you know that we have had some challenges regarding the Forensic TILA analysis. It’s my fault. I decided that the plain TILA analysis was insufficient for courtroom use based upon the feedback that I was getting from lawyers across the country. Yet I believed then as I believe now that the only law that will actually give real help to the homeowners — past, present and future — is TILA, REG Z and RESPA. Once it dawns on more people that there were two closings, one that was hidden from the borrower which included the real money funding his loan and the other being a fake closing purporting to loan money to the homeowner in a transaction that never happened, the gates will start to open. But I am ahead of the curve on that.

For those patiently waiting for the revisions, I appreciate your words of kindness. And your words of wisdom regarding the content of the report which I have been wrestling with. I especially appreciate your willingness to continue doing business with us despite the lack of organizational skills and foresight that might have prevented this situation. I guess the problem boils down to the fact that when I started the blog in 2007 I never intended it to be a business. But as it evolved and demands grew we were unable to handle it without help from the outside. If I had known I was starting a business at the beginning I would have done things much differently.

At the moment I am wrestling with exactly how I want to portray the impact of the appraisal fraud on the APR and the impact on “reset” payments have on the life of the loan, which in turn obviously effects the APR. I underestimated the computations required to do both the standard TILA Audit and the extended version which I think is the only thing of value. The standard TILA audit simply doesn’t tell the story although there is some meat in there by which a borrower could recover some money. There is also the standard issue of steering the borrower into a more expensive loan than that which he qualified for.

The other thing I am wrestling with is the computational structure of the HAMP presentation so that we can show that we are using reasonable figures and producing a reasonable offer. This needs to be credible so that when the rejection comes, the borrower is able to say that the offer was NOT considered by the banks and servicers because of the obvious asymmetry of results — the “investor” getting a lot less money from the proceeds of foreclosure.

And THAT in turn results in the ability of the homeowner to demand proof (a) that they considered it (b) that it was communicated to the investor (with copies) and (c) that there was a reasonable basis for rejection — meaning that the servicer must SHOW the analysis that was used to determine whether to accept or reject the HAMP proposal. Limited anecdotal evidence shows that like that point in discovery when the other side has “lost” in procedural attempts to block the borrower, the settlement is achieved within hours of the entry of the order.

So I have approached the analysis from the standpoint of another way to force disclosure and discovery as to exactly what money the investor actually lost, whether the investor still exists and whether there were payments received by agents of the creditor (participants in the securitization chain) that were perhaps never credited to the account of the bond holder and therefore which never reduced the amount due to the creditor from the homeowner. My goal here is to get to the point where we can say, based upon admissions of the banks and servicers that there is either nobody who qualifies as a creditor to submit a “credit bid” at auction or that such a party might exist but is different than the party who was permitted to initiate the foreclosure proceedings.

The complexity of all this was vastly underestimated and I overestimated the ability of outside analysts to absorb what I was talking about, take the ball and run with it. Frankly I am wondering if the analysis should be worked up by the people who do our securitization work, whose ability to pierce through the numerous veils has established a proven track record. In the meantime, I will plug along until I am satisfied that I have it right, since I am actually signing off on the analysis, and thus be able to confidently defend the positions taken on the analytical report (Excel Spreadsheet) etc.

%d bloggers like this: