NM and Fla Judges Express Doubt Over Whether Loans Ever Made it Into trust

Judges are thinking the unthinkable — that none of the trusts ever acquired anything and that the foreclosures were and are a sham.

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

—————-

It isn’t “theory. It is facts, or rather the absence of facts.

As shown in the two articles by Jeff Barnes below, we are obviously reaching the tipping point. First, the presentation of a Trust instrument means nothing if there is no proof the trust was active — and in particular actually purchased the subject loan. And Second, Judges will deny all objections to discovery and will rule for the borrower if the Trust did not acquire the loan.

In ruling this way the two Judges — thousands of miles apart — are obviously recognizing that the long standing bank objection to borrowers’ defenses based upon lack of legal standing absolutely do not apply. It is not a matter of whether the borrower has “standing” to bring up the PSA, it is a matter of whether the trust was party to any real transaction with relation to the subject mortgage. The answer is no. And no amount of extra paper, powers of attorney, assignments, or endorsements can change that.

Judges are thinking the unthinkable — that none of the trusts ever acquired anything and that the foreclosures were and are a sham.

It is probably worth re-publishing this portion from a long article by Adam Levitin written shortly after the Ibanez decision was reached in Massachusetts. Note how he points out that the vast majority of PSAs that are offered as evidence are neither executed nor do they have a mortgage loan schedule that is “reviewable.” The real problem — and the reason why the SEC-filed PSA documents do not have any signatures and why there is no mortgage loan schedule is that there was no transaction in which the Trust acquired the loans. Virtually all assignments are backdated and virtually none of the assignments relate back to any ACTUAL transaction in which the Trust was involved. The banks have been winning on fumes generated by legal inapplicable presumptions. —

It seems to me that any trust with Massachusetts loans that doesn’t have a publicly filed, executed PSA with a reviewable loan schedule should be on a downgrade watch. Very few publicly filed PSAs are executed and even fewer have publicly filed loan schedules. That doesn’t mean they don’t exist, but somewhere off-line, but if I ran a rating agency, I’d want trustees to show me that they’ve got those papers on at least a sample of deals. Of course should and would are quite different–the ratings agencies, like the regulators, are refusing to take the securitization fail issue as seriously as they should (and I understand that it is a complex legal issue), but I think they ignore it at their (and our) peril

Schedule A Consult Now!

Excerpts from Barnes’ articles:

A Florida Circuit Judge has gone on the record requiring Wells Fargo, as the claimed “trustee” of a securitized mortgage loan trust, to show that the mortgage loan which WF is attempting to enforce actually went into the PSA, and if not, the standing requirement has not been met and the case will fall on summary judgment. The homeowner is represented by Jeff Barnes, Esq.

The Judge specifically stated as follows:

“…but what I want plaintiff’s counsel to understand, that what you submitted to me with regards to the pooling and servicing agreement still does not have the actual mortgages that went into that pooling and servicing agreement…So at some point you’re going to have to show that this mortgage and note certainly went into that pooling and servicing agreement, which is what I have requested before. …  So I’m just asking you that before we get too far out, please make sure that’s there, or its going to be taken out on summary judgment. … In other words, if you’re a trustee for that pooling and servicing agreement, and the mortgage and note are not in that pooling and servicing agreement, you don’t have standing.”

This ruling not only directly confirms the proof requirements for standing in a securitization case, but supports the production of discovery on the issue as well.


DISCOVERY IS KEY.

The borrower thus requested 53 categories of documents from BAC, including securitization documents. BAC filed a Motion for Protective Order which claimed that public information on the SEC website was “confidential”; that the securitization-related discovery was “irrelevant”; and that it was essentially entitled to withhold discovery because it “has the original note” and has moved for summary judgment on the “relevant” issues.

The Court disagreed, denying BAC’s Motion in its entirety and commanding full responses to the borrower’s discovery request (including production of all responsive documents) within 30 days. The Court found BAC’s Motion to be “sparse”; not in compliance with New Mexico court rules as to discovery; and against New Mexico’s case law which provides for liberal discovery in foreclosure actions so that all of the issues are fully developed and a fair trial is had.

 

A New Mexico District Judge yesterday denied BAC Home Loan Servicing’s Motion for Protective Order which it filed in an attempt to avoid producing documentary discovery to a homeowner who BAC has sued for foreclosure. The loan was originated by New Mexico Bank and Trust, was sold to Countrywide, and thereafter allegedly “assigned” first to MERS and then by MERS to BAC.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

The Adam Levitin Article on Ibanez and Securitization fail:

Ibanez and Securitization Fail

posted by Adam Levitin

The Ibanez foreclosure decision by the Massachusetts Supreme Judicial Court has gotten a lot of attention since it came down on Friday. The case is, not surprisingly being taken to heart by both bulls and bears. While I don’t think Ibanez is a death blow to the securitization industry, at the very least it should make investors question the party line that’s been coming out of the American Securitization Forum. At the very least it shows that the ASF’s claims in its White Paper and Congressional testimony are wrong on some points, as I’ve argued elsewhere, including on this blog. I would argue that at the very least, Ibanez shows that there is previously undisclosed material risk in all private-label MBS.

The Ibanez case itself is actually very simple. The issue before the court was whether the two securitization trusts could prove a chain of title for the mortgages they were attempting to foreclose on.

There’s broad agreement that absent such a chain of title, they don’t have the right to foreclose–they’d have as much standing as I do relative to the homeowners. The trusts claimed three alternative bases for chain of title:

(1) that the mortgages were transferred via the pooling and servicing agreement (PSA)–basically a contract of sale of the mortgages

(2) that the mortgages were transferred via assignments in blank.

(3) that the mortgages follow the note and transferred via the transfers of the notes.

The Supreme Judicial Court (SJC) held that arguments #2 and #3 simply don’t work in Massachusetts. The reasoning here was heavily derived from Massachusetts being a title theory state, but I think a court in a lien theory state could easily reach the same result. It’s hard to predict if other states will adopt the SJC’s reasoning, but it is a unanimous verdict (with an even sharper concurrence) by one of the most highly regarded state courts in the country. The opinion is quite lucid and persuasive, particularly the point that if the wrong plaintiff is named is the foreclosure notice, the homeowner hasn’t received proper notice of the foreclosure.

Regarding #1, the SJC held that a PSA might suffice as a valid assignment of the mortgages, if the PSA is executed and contains a schedule that sufficiently identifies the mortgage in question, and if there is proof that the assignor in the PSA itself held the mortgage. (This last point is nothing more than the old rule of nemo dat–you can’t give what you don’t have. It shows that there has to be a complete chain of title going back to origination.)

On the facts, both mortgages in Ibanez failed these requirements. In one case, the PSA couldn’t even be located(!) and in the other, there was a non-executed copy and the purported loan schedule (not the actual schedule–see Marie McDonnell’s amicus brief to the SJC) didn’t sufficiently identify the loan. Moreover, there was no proof that the mortgage chain of title even got to the depositor (the assignor), without which the PSA is meaningless:

Even if there were an executed trust agreement with the required schedule, US Bank failed to furnish any evidence that the entity assigning the mortgage – Structured Asset Securities Corporation [the depositor] — ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale.

So Ibanez means that to foreclosure in Massachusetts, a securitization trust needs to prove:

(1) a complete and unbroken chain of title from origination to securitization trust
(2) an executed PSA
(3) a PSA loan schedule that unambiguously indicates that association of the defaulted mortgage loan with the PSA. Just having the ZIP code or city for the loan won’t suffice. (Lawyers: remember Raffles v. Wichelhaus, the Two Ships Peerless? This is also a Statute of Frauds issue–the banks lost on 1L contract issues!)

I don’t think this is a big victory for the securitization industry–I don’t know of anyone who argues that an executed PSA with sufficiently detailed schedules could not suffice to transfer a mortgage. That’s never been controversial. The real problem is that the schedules often can’t be found or aren’t sufficiently specific. In other words, deal design was fine, deal execution was terrible. Important point to note, however: the SJC did not say that an executed PSA plus valid schedules was sufficient for a transfer; the parties did not raise and the SJC did not address the question of whether there might be additional requirements, like those imposed by the PSA itself.

Now, the SJC did note that a “confirmatory assignment” could be valid, but (and this is s a HUGE but), it:

cannot confirm an assignment that was not validly made earlier or backdate an assignment being made for the first time. Where there is no prior valid assignment, a subsequent assignment by the mortgage holder to the note holder is not a confirmatory assignment because there is no earlier written assignment to confirm.”

In other words, a confirmatory assignment doesn’t get you anything unless you can show an original assignment. I’m afraid that the industry’s focus on the confirmatory assignment language just raises the possibility of fraudulent “confirmatory” assignments, much like the backdated assignments that emerged in the robosigning depositions.

So what does this mean? There’s still a valid mortgage and valid note. So in theory someone can enforce the mortgage and note. But no one can figure out who owns them. There were problems farther upstream in the chain of title in Ibanez (3 non-identical “true original copies” of the mortgage!) that the SJC declined to address because it wasn’t necessary for the outcome of the case. But even without those problems, I’m doubtful that these mortgages will ever be enforced. Actually going back and correcting the paperwork would be hard, neither the trustee nor the servicer has any incentive to do so, and it’s not clear that they can do so legally. Ibanez did not address any of the trust law issues revolving around securitization, but there might be problems assigning defaulted mortgages into REMIC trusts that specifically prohibit the acceptance of defaulted mortgages. Probably not worthwhile risking the REMIC status to try and fix bad paperwork (or at least that’s what I’d advise a trustee). I’m very curious to see how the trusts involved in this case account for the mortgages now.

The Street seemed heartened by a Maine Supreme Judicial Court decision that came out on FridayHarp v. JPM Chase. If they read the damn case, they wouldn’t put any stock in it.

In Harp, a pro se defendant took JPM all the way to the state supreme court. That alone should make investors nervous–there’s going to be a lot of delay from litigation. Harp also didn’t involve a securitized loan. But the critical difference between Harp and Ibanez is that Harp did not involve issues about the validity of chain of title. It was about the timing of the chain of title. Ibanez was about chain of title validity. In Harp JPM commenced a foreclosure and was subsequently assigned a loan. It then brought a summary judgment motion and prevailed. The Maine SJC stated that the foreclosure was improperly commenced, but it ruled for JPM on straightforward grounds: JPM had standing at the time it moved (and was granted) summary judgment. Given the procedural posture of the case, standing at the time of summary judgment, rather than at the commencement of the foreclosure was what mattered, and there was no prejudice to the defendant by the assignment occurring after the foreclosure action was brought, because the defendant had an opportunity to litigate against the real party in interest before judgment was rendered. The Maine Supreme Judicial Court also indicated that it might not be so charitable with improperly foreclosing lenders that were not in the future; JPM benefitted from the lack of clear law on the subject. In short, Harp says that if the title defects are cured before the foreclosure is completed, it’s ok. There’s a very limited cure possibility under Harp, which means that the law is basically what it was before: if you can’t show title, you can’t complete the foreclosure.

What about MERS?

The Ibanez mortgages didn’t involve MERS. MERS was created in part to fix the problem of unrecorded assignments gumming up foreclosures in the early 1990s (and also to avoid payment of local real estate recording fees). In theory, MERS should help, as it should provide a chain of title for the mortgages. Leaving aside the unresolved concerns about whether MERS recordings are valid and for what purposes, MERS only helps to the extent it’s accurate. And that’s a problem because MERS has lots of inaccuracies in the system. MERS does not always report the proper name of loan owners (e.g., “Bank of America,” instead of “Bank of America 2006-1 RMBS Trust”), and I’ve seen lots of cases where the info in the MERS system doesn’t remotely match with the name of either the servicer or the trust bringing the foreclosure. That might be because the mortgage was transferred out of the MERS system, but there’s still an outstanding record in the MERS system, which actually clouds the title. I’m guessing that on balance MERS should help on mortgage title issues, but it’s not a cure-all. And it is critical to note that MERS does nothing for chain of title issues involving notes.

Which brings me to a critical point: Ibanez and Harp involve mortgage chain of title issues, not note chain of title issues. There are plenty of problems with mortgage chain of title. But the note chain of title issues, which relate to trust law questions, are just as, if not more serious. We don’t have any legal rulings on the note chain of title issues. But even the rosiest reading of Ibanez cannot provide any comfort on note chain of title concerns.

So who loses here? In theory, these loans should be put-back to the seller. Will that happen? I’m skeptical. If not, that means that investors will be eating the loss. This case also means that foreclosures in MA (and probably elsewhere) will be harder, which means more delay, which again hurts investors because there will be more servicing advances to be repaid off the top. The servicer and the trustee aren’t necessarily getting off scot free, though. They might get hit with Fair Debt Collection Practices Act and Fair Credit Reporting Act suits from the homeowners (plus anything else a creative lawyer can scrape together). And mortgage insurers might start using this case as an excuse for denying coverage. REO purchasers and title insurers should be feeling a little nervous now, although I doubt that anyone who bought REO before Ibanez will get tossed out of their house if they are living in it. Going forward, though, I don’t think there’s a such thing as a good faith purchaser of REO in MA.

You can’t believe everything you read. Some of the materials coming out of the financial services sector are simply wrong. Three examples:

(1) JPMorgan Chase put out an analyst report this morning claiming the Massachusetts has not adopted the UCC. This is sourced to calls with two law firms. I sure hope JPM didn’t pay for that advice and that it didn’t come from anyone I know. It’s flat out wrong. Massachusetts has adopted the uniform version of Revised Article 9 of the UCC and a non-uniform version of Revised Article 1 of the UCC, but it has adopted the relevant language in Revised Article 1. There’s not a material divergence in the UCC here.
(2) One of my favorite MBS analysts (whom I will not name), put out a report this morning that stated that Ibanez said assignments in blank are fine. Wrong. It said that they are not and never have been valid in Massachusetts:

[In the banks’] reply briefs they conceded that the assignments in blank did not constitute a lawful assignment of the mortgages. Their concession is appropriate. We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment.”

A similar line is coming out of ASF. Courtesy of the American Banker:

Perplexingly, the American Securitization Forum issued a press release hailing the court’s ruling as upholding the validity of assignments in blank. A spokesman for the organization could not be reached to explain its interpretation.

ASF’s credibility seems to really be crumbling here. It’s one thing to disagree with the Massachusetts SJC. It’s another thing to persist in blatant misstatements of black letter law.

(3) Wells and US Bank, the trustees in the Ibanez case, immediately put out statements that they had no liability. Really? I’m not so sure. Trustees certainly have very broad exculpation and very narrow duties. But an inability to produce deal documents strikes me as such a critical error that it might not be covered. Do they really want to litigate a case where the facts make them look like such buffoons? Do they really want daylight shed on the details of their operations? Indeed, absent an executed PSA, I don’t think the trustees have any proof of exculpation. They might be acting, unwittingly, as common law trustees and thus general fiduciaries. I think they’ll settle quickly and quietly with any investors who sue.
Finally, what are the ratings agencies going to do?

It seems to me that any trust with Massachusetts loans that doesn’t have a publicly filed, executed PSA with a reviewable loan schedule should be on a downgrade watch. Very few publicly filed PSAs are executed and even fewer have publicly filed loan schedules. That doesn’t mean they don’t exist, but somewhere off-line, but if I ran a rating agency, I’d want trustees to show me that they’ve got those papers on at least a sample of deals. Of course should and would are quite different–the ratings agencies, like the regulators, are refusing to take the securitization fail issue as seriously as they should (and I understand that it is a complex legal issue), but I think they ignore it at their (and our) peril

 

Damages Rising: Wrongful Foreclosure Costs Wells Fargo $3.2 Million

Damage awards for wrongful foreclosure are rising across the country. In New Mexico a judge issued a $3.2 million judgment (including $2.7 million in punitive damages) against Wells Fargo for foreclosing on a man’s home after his death even though he had an insurance policy through the bank that paid the remaining balance on his mortgage. The balance “owed” on the mortgage was $125,000. Despite the fact that the bank knew about the insurance (because it was purchased through the bank) Wells Fargo continued to pursue foreclosure, ignoring the claim for insurance. It is because of cases like this that people are asking “why would they do that?”

The answer is what I’ve been saying for years.  Where a loan is subject to claims of securitization, and the investment banks lied to insurers, investors, guarantors and other co-obligors, they most likely have been paid many times for the same loan and never gave credit to the investors. By not crediting the investors they created the illusion of a higher balance that was due on the loan. They also created the illusion of a default that probably never occurred. But by pursuing foreclosure and foreclosure sale, they compounded the illusion and avoided claims for refund and repayment received from third parties and created claims for recovery of servicer advances. In many foreclosures that I have  reviewed, payments received from the FDIC under loss-sharing were never taken into account. Thus the bank collects money repeatedly for a loss it never incurred.

This case is another example of why I insist on following the money. By following the money trail you will discover that the documents upon which the foreclosure relies referred to  fictitious transactions. The documents are worthless, but nevertheless accepted in court unless a proper objection is made based upon preserving issues for trial and appeal by proper pleading and discovery.

Lawyers should take note of this profit opportunity. Most homeowners are looking for attorneys to take cases on contingency. Typical contingency fee is 40%. If these lawyers were on a typical contingency fee arrangement, their payday would have been around $1.2 million.

I should add that for every one of these judgments that are reported, I hear about dozens of confidential settlements that are of similar nature, to wit: clear title on the house, damages and attorneys fees.

Wells Fargo Ordered to Pay $3.2 Million for “Shocking” Foreclosure

New Mexico Supreme Court Wipes Out Bank of New York

bony-v-romero_nm-sup.ct.-reverses-with-instruction_2-14

There are a lot of things that could be analyzed in this case that was very recently decided (February 13, 2014). The main take away is that the New Mexico Supreme Court is demonstrating that the judicial system is turning a corner in approaching the credibility of the intermediaries who are pretending to be real parties in interest. I suggest that this case be studied carefully because their reasoning is extremely good and their wording is clear. Here are some of the salient quotes that I think it be used in motions and pleadings:

We hold that the Bank of New York did not establish its lawful standing in this case to file a home mortgage foreclosure action. We also hold that a borrower’s ability to repay a home mortgage loan is one of the “borrower’s circumstances” that lenders and courts must consider in determining compliance with the New Mexico Home Loan Protection Act, NMSA 1978, §§ 58-21A-1 to -14 (2003, as amended through 2009) (the HLPA), which prohibits home mortgage refinancing that does not provide a reasonable, tangible net benefit to the borrower. Finally, we hold that the HLPA is not preempted by federal law. We reverse the Court of Appeals and district court and remand to the district court with instructions to vacate its foreclosure judgment and to dismiss the Bank of New York’s foreclosure action for lack of standing.

The Romeros soon became delinquent on their increased loan payments. On April 1, 2008, a third party—the Bank of New York, identifying itself as a trustee for Popular Financial Services Mortgage—filed a complaint in the First Judicial District Court seeking foreclosure on the Romeros’ home and claiming to be the holder of the Romeros’ note and mortgage with the right of enforcement.

The Romeros also raised several counterclaims, only one of which is relevant to this appeal: that the loan violated the antiflipping provisions of the New Mexico HLPA, Section 58-21A-4(B) (2003).[They were lured into refinancing into a loan with worse provisions than the one they had].

Litton Loan Servicing did not begin servicing the Romeros’ loan until November 1, 2008, seven months after the foreclosure complaint was filed in district court.

At a bench trial, Kevin Flannigan, a senior litigation processor for Litton Loan Servicing, testified on behalf of the Bank of New York. Flannigan asserted that the copies of the note and mortgage admitted as trial evidence by the Bank of New York were copies of the originals and also testified that the Bank of New York had physical possession of both the note and mortgage at the time it filed the foreclosure complaint.

{9} The Romeros objected to Flannigan’s testimony, arguing that he lacked personal knowledge to make these claims given that Litton Loan Servicing was not a servicer for the Bank of New York until after the foreclosure complaint was filed and the MERS assignment occurred. The district court allowed the testimony based on the business records exception because Flannigan was the present custodian of records.

{10} The Romeros also pointed out that the copy of the “original” note Flannigan purportedly authenticated was different from the “original” note attached to the Bank of New York’s foreclosure complaint. While the note attached to the complaint as a true copy was not indorsed, the “original” admitted at trial was indorsed twice: first, with a blank indorsement by Equity One and second, with a special indorsement made payable to JPMorgan Chase.

the Court of Appeals affirmed the district court’s rulings that the Bank of New York had standing to foreclose and that the HLPA had not been violated but determined as a result of the latter ruling that it was not necessary to address whether federal law preempted the HLPA. See Bank of N.Y. v. Romero, 2011-NMCA-110, ¶ 6, 150 N.M. 769, 266 P.3d 638 (“Because we conclude that substantial evidence exists for each of the district court’s findings and conclusions, and we affirm on those grounds, we do not addressthe Romeros’ preemption argument.”).

We have recognized that “the lack of [standing] is a potential jurisdictional defect which ‘may not be waived and may be raised at any stage of the proceedings, even sua sponte by the appellate court.’” Gunaji v. Macias, 2001-NMSC-028, ¶ 20, 130 N.M. 734, 31 P.3d 1008 (citation omitted). While we disagree that the Romeros waived their standing claim, because their challenge has been and remains largely based on the note’s indorsement to JPMorgan Chase, whether the Romeros failed to fully develop their standing argument before the Court of Appeals is immaterial. This Court may reach the issue of standing based on prudential concerns. See New Energy Economy, Inc. v. Shoobridge, 2010-NMSC-049, ¶ 16, 149 N.M. 42, 243 P.3d 746 (“Indeed, ‘prudential rules’ of judicial self-governance, like standing, ripeness, and mootness, are ‘founded in concern about the proper—and properly limited—role of courts in a democratic society’ and are always relevant concerns.” (citation omitted)). Accordingly, we address the merits of the standing challenge.[e.s.]

the Romeros argue that none of the Bank’s evidence demonstrates standing because (1) possession alone is insufficient, (2) the “original” note introduced by the Bank of New York at trial with the two undated indorsements includes a special indorsement to JPMorgan Chase, which cannot be ignored in favor of the blank indorsement, (3) the June 25, 2008, assignment letter from MERS occurred after the Bank of New York filed its complaint, and as a mere assignment

of the mortgage does not act as a lawful transfer of the note, and (4) the statements by Ann Kelley and Kevin Flannigan are inadmissible because both lack personal knowledge given that Litton Loan Servicing did not begin servicing loans for the Bank of New York until seven months after the foreclosure complaint was filed and after the purported transfer of the loan occurred. 
[NOTE BURDEN OF PROOF]

(“[S]tanding is to be determined as of the commencement of suit.”); accord 55 Am. Jur. 2d Mortgages § 584 (2009) (“A plaintiff has no foundation in law or fact to foreclose upon a mortgage in which the plaintiff has no legal or equitable interest.”). One reason for such a requirement is simple: “One who is not a party to a contract cannot maintain a suit upon it. If [the entity] was a successor in interest to a party on the [contract], it was incumbent upon it to prove this to the court.” L.R. Prop. Mgmt., Inc. v. Grebe, 1981-NMSC-035, ¶ 7, 96 N.M. 22, 627 P.2d 864 (citation omitted). The Bank of New York had the burden of establishing timely ownership of the note and the mortgage to support its entitlement to pursue a foreclosure action. See Gonzales v. Tama, 1988-NMSC- 016, ¶ 7, 106 N.M. 737, 749 P.2d 1116

[THE DIFFERENCE BETWEEN REMEDIES ON THE NOTE AND REMEDIES ON THE MORTGAGE]

(“One who holds a note secured by a mortgage has two separate and independent remedies, which he may pursue successively or concurrently; one is on the note against the person and property of the debtor, and the other is by foreclosure to enforce the mortgage lien upon his real estate.” (internal quotation marks and citation omitted)).

3. None of the Bank’s Evidence Demonstrates Standing to Foreclose

{19} The Bank of New York argues that in order to demonstrate standing, it was required to prove that before it filed suit, it either (1) had physical possession of the Romeros’ note indorsed to it or indorsed in blank or (2) received the note with the right to enforcement, as required by the UCC. See § 55-3-301 (defining “[p]erson entitled to enforce” a negotiable instrument). While we agree with the Bank that our state’s UCC governs how a party becomes legally entitled to enforce a negotiable instrument such as the note for a home loan, we disagree that the Bank put forth such evidence.

a. Possession of a Note Specially Indorsed to JPMorgan Chase Does Not Establish the Bank of New York as a Holder

{20} Section 55-3-301 of the UCC provides three ways in which a third party can enforce a negotiable instrument such as a note. Id. (“‘Person entitled to enforce’ an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the [lost, destroyed, stolen, or mistakenly transferred] instrument pursuant to [certain UCC enforcement provisions].”); see also § 55-3-104(a)(1), (b), (e) (defining “negotiable instrument” as including a “note” made “payable to bearer or to order”). Because the Bank’s arguments rest on the fact that it was in physical possession of the Romeros’ note, we need to consider only the first two categories of eligibility to enforce under Section 55-3-301.

{21} The UCC defines the first type of “person entitled to enforce” a note—the “holder” of the instrument—as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” NMSA 1978, § 55-1-201(b)(21)(A) (2005); see also Frederick M. Hart & William F. Willier, Negotiable Instruments Under the Uniform Commercial Code, § 12.02(1) at 12-13 to 12-15 (2012) (“The first requirement of being a holder is possession of the instrument. However, possession is not necessarily sufficient to make one a holder. . . . The payee is always a holder if the payee has possession. Whether other persons qualify as a holder depends upon whether the instrument initially is payable to order or payable to bearer, and whether the instrument has been indorsed.” (footnotes omitted)). Accordingly, a third party must prove both physical possession and the right to enforcement through either a proper indorsement or a transfer by negotiation. See NMSA 1978, § 55-3-201(a) (1992) (“‘Negotiation’ means a transfer of possession . . . of an instrument by a person other than the issuer to a person who thereby becomes its holder.”). [E.S.] Because in this case the Romeros’ note was clearly made payable to the order of Equity One, we must determine whether the Bank provided sufficient evidence of how it became a “holder” by either an indorsement or transfer.

Without explanation, the note introduced at trial differed significantly from the original note attached to the foreclosure complaint, despite testimony at trial that the Bank of New York had physical possession of the Romeros’ note from the time the foreclosure complaint was filed on April 1, 2008. Neither the unindorsed note nor the twice-indorsed

7

note establishes the Bank as a holder.

{23} Possession of an unindorsed note made payable to a third party does not establish the right of enforcement, just as finding a lost check made payable to a particular party does not allow the finder to cash it. [E.S.]See NMSA 1978, § 55-3-109 cmt. 1 (1992) (“An instrument that is payable to an identified person cannot be negotiated without the indorsement of the identified person.”). The Bank’s possession of the Romeros’ unindorsed note made payable to Equity One does not establish the Bank’s entitlement to enforcement.

We are not persuaded. The Bank provides no authority and we know of none that exists to support its argument that the payment restrictions created by a special indorsement can be ignored contrary to our long-held rules on indorsements and the rights they create. See, e.g., id. (rejecting each of two entities as a holder because a note lacked the requisite indorsement following a special indorsement); accord NMSA 1978, § 55-3-204(c) (1992) (“For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest in the instrument is effective as an unqualified indorsement of the instrument.”).

[COMPETENCY OF WITNESS]

the Bank of New York relies on the testimony of Kevin Flannigan, an employee of Litton Loan Servicing who maintained that his review of loan servicing records indicated that the Bank of New York was the transferee of the note. The Romeros objected to Flannigan’s testimony at trial, an objection that the district court overruled under the business records exception. We agree with the Romeros that Flannigan’s testimony was inadmissible and does not establish a proper transfer.

Litton Loan Servicing, did not begin working for the Bank of New York as its servicing agent until November 1, 2008—seven months after the April 1, 2008, foreclosure complaint was filed. Prior to this date, Popular Mortgage Servicing, Inc. serviced the Bank of New York’s loans. Flannigan had no personal knowledge to support his testimony that transfer of the Romeros’ note to the Bank of New York prior to the filing of the foreclosure complaint was proper because Flannigan did not yet work for the Bank of New York. See Rule 11-602 NMRA (“A witness may testify to a matter only if evidence is introduced sufficient to support a finding that the

9

witness has personal knowledge of the matter. [E.S.] Evidence to prove personal knowledge may consist of the witness’s own testimony.”). We make a similar conclusion about the affidavit of Ann Kelley, who also testified about the status of the Romeros’ loan based on her work for Litton Loan Servicing. As with Flannigan’s testimony, such statements by Kelley were inadmissible because they lacked personal knowledge.

[OBJECTION TO HEARSAY BUSINESS RECORDS REVERSED AND SUSTAINED]

When pressed about Flannigan’s basis of knowledge on cross-examination, Flannigan merely stated that “our records do indicate” the Bank of New York as the holder of the note based on “a pooling and servicing agreement.” No such business record itself was offered or admitted as a business records hearsay exception. See Rule 11-803(F) NMRA (2007) (naming this category of hearsay exceptions as “records of regularly conducted activity”).

The district court erred in admitting the testimony of Flannigan as a custodian of records under the exception to the inadmissibility of hearsay for “business records” that are made in the regular course of business and are generally admissible at trial under certain conditions. See Rule 11-803(F) (2007) (citing the version of the rule in effect at the time of trial). The business records exception allows the records themselves to be admissible but not simply statements about the purported contents of the records. [E.S.] See State v. Cofer, 2011-NMCA-085, ¶ 17, 150 N.M. 483, 261 P.3d 1115 (holding that, based on the plain language of Rule 11-803(F) (2007), “it is clear that the business records exception requires some form of document that satisfies the rule’s foundational elements to be offered and admitted into evidence and that testimony alone does not qualify under this exception to the hearsay rule” and concluding that “‘testimony regarding the contents of business records, unsupported by the records themselves, by one without personal knowledge of the facts constitutes inadmissible hearsay.’” (citation omitted)). Neither Flannigan’s testimony nor Kelley’s affidavit can substantiate the existence of documents evidencing a transfer if those documents are not entered into evidence. Accordingly, Flannigan’s trial testimony cannot establish that the Romeros’ note was transferred to the Bank of New York.[E.S.]

[REJECTION OF MERS ASSIGNMENT]

We also reject the Bank’s argument that it can enforce the Romeros’ note because it was assigned the mortgage by MERS. An assignment of a mortgage vests only those rights to the mortgage that were vested in the assigning entity and nothing more. See § 55-3-203(b) (“Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course.”); accord Hart & Willier, supra, § 12.03(2) at 12-27 (“Th[is] shelter rule puts the transferee in the shoes of the transferor.”).

[MERS CAN NEVER ASSIGN THE NOTE]

As a nominee for Equity One on the mortgage contract, MERS could assign the mortgage but lacked any authority to assign the Romeros’ note. Although this Court has never explicitly ruled on the issue of whether the assignment of a mortgage could carry with it the transfer of a note, we have long recognized the separate functions that note and mortgage contracts perform in foreclosure actions. See First Nat’l Bank of Belen v. Luce, 1974-NMSC-098, ¶ 8, 87 N.M. 94, 529 P.2d 760 (holding that because the assignment of a mortgage to a bank did not convey an interest in the loan contract, the bank was not entitled to foreclose on the mortgage); Simson v. Bilderbeck, Inc., 1966-NMSC-170, ¶¶ 13-14, 76 N.M. 667, 417 P.2d 803 (explaining that “[t]he right of the assignee to enforce the mortgage is dependent upon his right to enforce the note” and noting that “[b]oth the note and mortgage were assigned to plaintiff.

[SPLITTING THE NOTE AND MORTGAGE]

(“A mortgage securing the repayment of a promissory note follows the note, and thus, only the rightful owner of the note has the right to enforce the mortgage.”); Dunaway, supra, § 24:18 (“The mortgage only secures the payment of the debt, has no life independent of the debt, and cannot be separately transferred. If the intent of the lender is to transfer only the security interest (the mortgage), this cannot legally be done and the transfer of the mortgage without the debt would be a nullity.”). These separate contractual functions—where the note is the loan and the mortgage is a pledged security for that loan—cannot be ignored simply by the advent of modern technology and the MERS electronic mortgage registry system.

[THE NOBODY ELSE IS CLAIMING ARGUMENT IS EXPLICITLY REJECTED]

Failure of Another Entity to Claim Ownership of the Romeros’ Note Does Not Make the Bank of New York a Holder

{37} Finally, the Bank of New York urges this Court to adopt the district court’s inference that if the Bank was not the proper holder of the Romeros’ note, then third-party-defendant Equity One would have claimed to be the rightful holder, and Equity One made no such claim.

11

{38} The simple fact that Equity One does not claim ownership of the Romeros’ note does not establish that the note was properly transferred to the Bank of New York. In fact, the evidence in the record indicates that JPMorgan Chase may be the lawful holder of the Romeros’ note, as reflected in the note’s special indorsement.

[HOLDER MUST PROVE ENTITLEMENT TO ENFORCE — NO PRESUMPTION ALLOWED]

Because the transferee is not a holder, there is no presumption under Section [55-]3-308 [(1992) (entitling a holder in due course to payment by production and upon signature)] that the transferee, by producing the instrument, is entitled to payment. The instrument, by its terms, is not payable to the transferee and the transferee must account for possession of the unindorsed instrument by proving the transaction through which the transferee acquired it.

[LENDER’S OBLIGATION TO ASSURE THAT THE LOAN IS VIABLE]

B. A Lender Must Consider a Borrower’s Ability to Repay a Home Mortgage Loan in Determining Whether the Loan Provides a Reasonable, Tangible Net Benefit, as Required by the New Mexico HLPA

{39} For reasons that are not clear in the record, the Romeros did not appeal the district court’s judgment in favor of the original lender, Equity One, on the Romeros’ claims that Equity One violated the HLPA. The Court of Appeals addressed the HLPA violation issue in the context of the Romeros’ contentions that the alleged violation constituted a defense to the foreclosure complaint of the Bank of New York by affirming the district court’s favorable ruling on the Bank of New York’s complaint. As a result of our holding that the Bank of New York has not established standing to bring a foreclosure action, the issue of HLPA violation is now moot in this case. But because it is an issue that is likely to be addressed again in future attempts by whichever institution may be able to establish standing to foreclose on the Romero home and because it involves a statutory interpretation issue of substantial public importance in many other cases, we address the conclusion of both the

12

Court of Appeals and the district court that a homeowner’s inability to repay is not among “all of the circumstances” that the 2003 HLPA, applicable to the Romeros’ loan, requires a lender to consider under its “flipping” provisions:

No creditor shall knowingly and intentionally engage in the unfair act or practice of flipping a home loan. As used in this subsection, “flipping a home loan” means the making of a home loan to a borrower that refinances an existing home loan when the new loan does not have reasonable, tangible net benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan and the borrower’s circumstances.

Section 58-21A-4(B) (2003); see also Bank of N.Y., 2011-NMCA-110, ¶ 17 (holding that “while the ability to repay a loan is an important consideration when otherwise assessing a borrower’s financial situation, we will not read such meaning into the statute’s ‘reasonable, tangible net benefit’ language”).

[DOOMED LOANS — WHO HAS THE RISK?]

We have been presented with no conceivable reason why the Legislature in 2003 would consciously exclude consideration of a borrower’s ability to repay the loan as a factor of the borrower’s circumstances, and we can think of none. Without an express legislative direction to that effect, we will not conclude that the Legislature meant to approve mortgage loans that were doomed to end in failure and foreclosure. Apart from the plain language of the statute and its express statutory purpose, it is difficult to comprehend how an unrepayable home mortgage loan that will result in a foreclosure on one’s home and a deficiency judgment to pay after the borrower is rendered homeless could provide “a reasonable, tangible net benefit to the borrower.”

[LENDER’S OBLIGATION TO MAKE SURE IT IS A VIABLE TRANSACTION] a lender cannot avoid its own obligation to consider real facts and circumstances [E.S.] that might clarify the inaccuracy of a borrower’s income claim. Id. (“Lenders cannot, however, disregard known facts and circumstances that may place in question the accuracy of information contained in the application.”) A lender’s willful blindness to its responsibility to consider the true circumstances of its borrowers is unacceptable. A full and fair consideration of those circumstances might well show that a new mortgage loan would put a borrower into a materially worse situation with respect to the ability to make home loan payments and avoid foreclosure, consequences of a borrower’s circumstances that cannot be disregarded.

if the inclusion of such boilerplate language in the mass of documents a borrower must sign at closing would substitute for a lender’s conscientious compliance with the obligations imposed by the HLPA, its protections would be no more than empty words on paper that could be summarily swept aside by the addition of yet one more document for the borrower to sign at the closing.

[THE BLAME GAME]

Borrowers are certainly not blameless if they try to refinance their homes through loans they cannot afford. But they do not have a mortgage lender’s expertise, and the combination of the relative unsophistication of many borrowers and the potential motives of unscrupulous lenders seeking profits from making loans without regard for the consequences to homeowners led to the need for statutory reform. See § 58-21A-2 (discussing (A) “abusive mortgage lending” practices, including (B) “making . . . loans that are equity-based, rather than income based,” (C) “repeatedly refinanc[ing] home loans,” rewarding lenders with “immediate income” from “points and fees” and (D) victimizing homeowners with the unnecessary “costs and terms” of “overreaching creditors”).

[FEDERAL PREEMPTION CLAIM FROM OCC STATEMENT DOES NOT PROVIDE BANK OF NEW YORK ANY PROTECTION]

 

While the Bank is correct in asserting that the OCC issued a blanket rule in January 2004, see 12 C.F.R. § 34.4(a) (2004) (preempting state laws that impact “a national bank’s ability to fully exercise its Federally authorized real estate lending powers”), and that the New Mexico Administrative Code recognizes this OCC rule, neither the Bank nor our administrative code addresses several actions taken by Congress and the courts since 2004 to disavow the OCC’s broad preemption statement.

 

Applying the Dodd-Frank standard to the HLPA, we conclude that federal law does not preempt the HLPA. First, our review of the NBA reveals no express preemption of state consumer protection laws such as the HLPA. Second, the Bank provides no evidence that conforming to the dictates of the HLPA prevents or significantly interferes with a national bank’s operations. Third, the HLPA does not create a discriminatory effect; rather, the HLPA applies to any “creditor,” which the 2003 statute defines as “a person who regularly [offers or] makes a home loan.” Section 58-21A-3(G) (2003). Any entity that makes home loans in New Mexico must follow the HLPA, regardless of whether the lender is a state or nationally chartered bank. See § 58-21A-2 (providing legislative findings on abusive mortgage lending practices that the HLPA is meant to discourage).

New Mexico Gears Up for Widening Foreclosure War

The State of New Mexico is seeing a sudden increase in foreclosures, indicating the widening war on homeowners and the middle class by banks who don’t know the meaning of enough. It is not merely hope we offer the homeowners in New Mexico, it is the likelihood that it will get increasingly difficult for foreclosers to win their cases if they are properly contested, utilizing the Deny and Discover

New Mexico is a “judicial state” which means that in order for a foreclosure to get started the “lender” must bring suit, serve you with a summons and give you time to respond with either a motion to dismiss or an answer, affirmative, defenses and counterclaim. Failure to respond results in a clerk’s default after which the “lender” will ask the court for a Final Default judgment setting the sale date.

The lender must still prove up their case. It is a note and mortgage and an accounting for the amounts paid and amounts received. This is done by the usual affidavit which we see failing now all over the country because the company on whose behalf the affidavit is filed has nothing to do with the loan. They are neither a creditor nor a servicer. Then they have the problem that the person signing the affidavit works for the company that has nothing to do with the loan, and cannot and does not allege personal knowledge, which makes the affidavit void.

I found one attorney (By N. Ana Garner, Esq.) on the interest who appears to have some knowledge of the process and is devoting herself to the protection of homeowners’ rights. I will be contacting her myself. Her article and contact information are on the link below.

But I wanted to repost her article on foreclosure in New Mexico because I thought it gave a good overview of the process:

 By N. Ana Garner, Esq.

Typically, you will receive telephone calls from the servicer (the company to whom you make payments) very soon after missing your first payment. These calls will continue, sometimes daily, with aggressive bill-collectors badgering you to make your full payment now. The only way to stop the phone calls is to request in writing that they not contact you by telephone, but only in writing. If the loan is FHA-insured, many lenders are required to accept partial payments. Before making any partial payment, confirm whether this applies to your loan, otherwise, your partial payment isn’t applied to the loan, nor is it returned to you.

You will probably start getting letters from the servicer stating that you can apply for one of the programs designed to keep people in their homes. I encourage my clients to participate in this process, even though the results are less than satisfying for most. Who knows, you may get lucky and get the modification you need to afford to stay in your home. If your loan was a no-doc, with no income verification, it seems odd that the bank is now asking for documentation of your current income and expenses to modify an oppressive loan that required no such documentation originally. At the very least, this process can buy you another couple of months before the inevitable foreclosure suit.

There are certain regulations a lender must follow before filing suit, and by participating in the loss mitigation process, you may have defenses available to you for the servicer’s failure to follow applicable laws.

The servicer who files a foreclosure suit while you are being considered for a HAMP modification is in violation of the servicer’s contract with the U.S. Treasury and program guidelines. Keep copies of all paperwork generated in this process for later review by your attorney.

After several months of correspondence and documentation has been submitted, you will receive a letter from an attorney for the servicer or bank. When you receive the first letter from an attorney, you’ll know you are getting close to the foreclosure suit being filed. The attorney will give you a notice of default and intent to accelerate, which means that if payments are not caught up within 30 days, the full amount will become due and owing.

This is a good time to hire an attorney if you want to live in your home for a while. You may get a second letter in 30 days stating that the note has been accelerated, or you may just get a stranger at your door who asks you if you are “Mr. X”, at which point, they hand you a fat envelope. That envelope will contain a Summons, Complaint in foreclosure, and attachments to the Complaint.

You have 30 days to file a formal answer with the court, and send a copy to the bank attorneys. DON’T IGNORE THESE PAPERS! You must file an answer to avoid a default judgment and imminent sale of your home. Banks count on most of these foreclosures being granted as a default judgment because most homeowners don’t even bother to file an answer, mistakenly believing there is nothing they can do about the situation. Why be one of these statistics when you can fight for your home?

In cases where the bank knows it lacks the proof of standing (the legal right to file suit because they are the owner of the Note), just having an attorney file an answer for you may cause some of these cases to wither away. If the plaintiff (the party who started the lawsuit) fails to take action that moves the case towards finality, the judge may dismiss the action after 6 months of inactivity, for lack of prosecution. However, the bank can have the case reinstated within 30 days, or it can refile a new lawsuit at a later date.

Aggressively defending the case may put you in a better bargaining position when the case is scheduled for settlement conference. Many foreclosure defense attorneys are getting good results at mediation, typically far better than the loan modifications that were offered before suit was filed.

Ana Garner, Attorney at Law, represents only homeowners in the Santa Fe and Albuquerque areas. She has 30 years of litigation experience in N.M. courts. Her mission is to protect the integrity of the judicial process in foreclosure actions and expose the fraud being perpetrated on the courts and citizens. Her contact information is garnerlaw@yahoo.com; telephone 505 474-5300. She will review foreclosure lawsuit documents at no charge if they are scanned and e-mailed to her with the subject line, Free Review of Foreclosure docs.

1009 http://www.foreclosurelaw.org/New_Mexico_Foreclosure_Law.htm

Don’t leave or enter short sale home without quiet title and adequate title insurance.

MOST POPULAR ARTICLES

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT

CUSTOMER SERVICE 520-405-1688

U.S. home short sales surpass foreclosure deals for first time

Editor’s Comment: 

Well of course short sales will be higher than REO sales. REO sales of foreclosed property where the bank or its agent owns the property presents a virtually impossible situation with respect to title. The odds are rising every day that a homeowner is going to sue, reverse the eviction, reverse the foreclosure, get title free of the mortgage and note and have the right to exclusive possession. We are getting reports of this across the country. While the banks are trying to keep a stiff upper lip about it all they are in a state of panic (!) because of the loss of ill-gotten gains they thought they had in the bag and (2) because this loss must now be written down on their balance sheet which means that their capital reserves must be correspondingly increased. Where will they get the money?

 SO REO sales are going to be increasingly problematic.

But in a short sale it is the actual homeowner who signs the deed. That eliminates a wild card that is totally out of the control of the banks. The balance of the problem is that the satisfaction of the old mortgage is being executed by parties who have no ownership of the loan nor any agency authority to represent the true creditors (in most cases). But if the short-sale goes thorugh the new buyer can file a quiet title action for a few hundred dollars in fees and a couple of hundred dollars in court costs, and get a judge to sign off on all title claims. To paraphrase American Express’ “don’t leave home without it” It is the best interest of both the old homeowner who could be subject to liability a second time if the real creditor wakes up and in the interest of the new buyer who doesn’t want to lose his home to the claims of some creditor who can actually prove a case. So don’t leave or enter a short-sale home with quiet title — and a REAL title insurance policy that does not exclude claims arising from supposed securitization of the loan.

U.S. home short sales surpass foreclosure deals for first time                                        New Mexico Business Weekly

In a sign that banks are becoming more willing to sell houses for less than the amount that is owed on them, the number of U.S. home short sales surpassed foreclosure deals for the first time, Bloomberg reports, citing Lender Processing Services Inc.

Short sales accounted for 23.9 percent of home purchases in January, the most recent month available, compared with 19.7 percent for sales of foreclosed homes, data compiled by the company show. A year earlier, 16.3 percent of transactions were short sales and 24.9 percent involved foreclosures.

The three largest banks in New Mexico are Wells Fargo, Bank of America and U.S. Bancorp    , respectively.

WHAT NOT TO DO IN PLEADING AND MOTION PRACTICE

REGISTER NOW FOR DISCOVERY AND MOTION PRACTICE WORKSHOP

(2006) Here is a case that should not have been filed (entire text of opinion below) and was argued improperly. The homeowners clearly lost because they put their eggs in the wrong basket. Nonetheless, the opinion is a pretty good compilation of the various statutes, rules and regulations affecting mortgages and their enforcement.

An interest quote used against the “homeowner” which itself was a trust, is that the word “interest” should be interpreted to mean “Ownership interest”. This is precisely the argument I advance regarding the holders of of certificates or even non-certificated mortgage-backed securities whose indenture is the prospectus. Those investors received at the very least a “beneficial” interest in the loans. Thus either the prospectus, the certificate or both are starting points, in addition to the note signed by the borrower, as evidence of the terms and status of the obligation.

CAROL R. ROSEN, Plaintiff,
v.
U.S. BANK NATIONAL ASSOCIATION as TRUSTEE, EQUIFIRST CORP., AMERICAN MORTGAGE SPECIALISTS, INC., and JOHN and JANE DOES 1-10, Defendants.

CIV-06-0427 JH/LAM.

  1. DON’T TRY OUT NEW THEORIES IN PLEADINGS THAT SOUND LIKE THE CONSPIRACY THEORIES OF CRAZY PEOPLE, EVEN IF YOU THINK YOU ARE RIGHT. IF YOU KNOW IN ADVANCE THAT THE THEORY IS OUT OF BOUNDS IN THE PERCEPTION OF MOST PEOPLE, USE SOMETHING ELSE — there are plenty of simpler basic principles of law that will enhance rather than reduce your credibility.
  2. Beware of companies that claim to have a magic bullet to end your mortgage problems. Securitization is complex, and you need to focus on breaking it down to its simplest elements.
  3. Don’t try to win your case on a knock-out punch in the first hearings. Plan your strategy around education of the judge as to what happened in YOUR loan, using published reports, expert declarations and forensic analysis as corroborative.
  4. Don’t even think the Judge will indict the entire financial industry for what happened in your case. This will diminish your credibility.
  5. Plead causes of action that are familiar to the Judge and make sure you know and plead all the elements of those causes of action.
  6. Focus in pleadings and hearings as much as possible on the premises with which nobody could disagree — like every case should be heard on the merits, that you have a right to the same presumptions as anyone else who is pleading a claim or defense, and that you need to conduct discovery because there are facts and documents known to the defendants for which it would be over-burdensome and hugely expensive for you to get any other way.
  7. Don’t expect the Judge to be sympathetic. In most cases Judges still look at securitized mortgages like any other mortgage. In most cases Judges see challanges to foreclosures as desperate attempts to stave of the inevitable. Lead and repeat your main message. Your main message is that it is indisputable that if the facts you are pleading are true, then you are entitled to the precise relief you have demanded. KEEP IT SIMPLE. Use each hearing to repeat the previous “lesson” and add new lessons for the Judge.
  8. Do not avoid arguments of opposing counsel. Challenge them in a direct manner showing the Judge that if the attorney was correct in what he is saying, then he would be right and his client would win (if that is the case) or showing that the if the attorney was correct he still would not win his case. THINK BEFORE YOU SPEAK. PLAN BEFORE YOU APPEAR.
  9. DO NOT FALL INTO THE TRAP OF ALLOWING OPPOSING COUNSEL TO PROFFER FACTS AS THOUGH THEY WERE TRUE. Challenge that tactic by admitting that counsel has a right to put on evidence in support of what he/she is arguing but that the hearing is not the trial and you have evidence too, and you’ll have more evidence if you are allowed to proceeds on the merits of your claim. By all means, once opposing counsel has “testified” include in your remarks prepared script as to YOUR facts and YOUR conclusions. END WITH THE INESCAPABLE CONCLUSION THAT THERE IS OBVIOUSLY AN ISSUE OF FACT AND WHETHER THE JUDGE THINKS YOU WILL WIN OR NOT IS IMMATERIAL. YOU HAVE A RIGHT TO BE HEARD ON THE MERITS AND A RIGHT TO CONDUCT DISCOVERY. If opposing counsel is so sure that what you are alleging is frivolous, then there are many remedies available including summary judgment. But it is not until the FACTS come out that any of those remedies arise.
  10. Do not characterize your opposition as part of an evil axis of power. They may well have contributed to the Judge’s campaign, or otherwise have indirect relationships that do not merit recusal. This is not about whether banks are evil, it is about why are all these entities necessary to simply foreclose on a mortgage? If it is as simple as THEY say, why don’t they have the paperwork to back it up?
  11. DO NOT SAY ANYTHING YOU CAN’T BACK UP. This does NOT mean you have all the proof you need to win your case when you file your first pleading. It means that you know that if you are allowed to proceed, and you actually get the disclosure and discovery of the true facts, you will win.

United States District Court, D. New Mexico.

November 8, 2006.

Carol Rosen, Albuquerque, NM, Attorney for Plaintiff.

Rhodes & Salmon, P.C., William C. Salmon, Albuquerque, NM, Attorney for Defendant U.S. Bank.

Karla Poe, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM, Kimberly Smith Rivera, McGlinchey Staford, PLLC, Cleveland, OH, Attorney for Defendant EquiFirst.

MEMORANDUM OPINION AND ORDER

JUDITH HERRERA, District Judge.

THIS MATTER is before the Court on Defendant U.S. Bank National Association’s (“U.S. Bank”) Motion to Dismiss or Stay [Doc. 23, filed Aug. 7, 2006], and Defendant EquiFirst Corporation, Inc.’s (“EquiFirst”) Motion for Judgment on the Pleadings [Doc. 28, filed Sept. 15, 2006]. The Court has reviewed the motions, the record in this case, and the relevant law, and concludes that the motions are well-taken and should be GRANTED.

I. FACTUAL AND PROCEDURAL BACKGROUND

Before turning to the facts presented in the pleadings in this case, the Court takes judicial notice of cases involving D. Scott Heineman and Kurt F. Johnson, who are the Trustees of the Rosen Family Trust, of which Plaintiff Carol R. Rosen is a beneficiary. See Doc. 17, Ex. B ¶ 4.A. Heineman and Johnson

were the proprietors of a business that claimed to help homeowners eliminate their mortgages. [Heineman and Johnson’s] business operated under the “vapor money” theory of lending, which holds that loans funded through wire transfers rather than through cash are unenforceable. [They] claimed that, through a complicated series of transactions, they could take advantage of this loophole and legally eliminate their clients’ mortgages.

In 2004, Johnson and Heineman filed a series of lawsuits against mortgage companies on behalf of their clients, seeking, among other things, a declaration that any mortgages on their clients’ properties were void. All fifteen cases were . . . found. . . to be “frivolous and . . . filed in bad faith.”

. . . .

On September 22, 2005, a federal grand jury indicted [Heineman and Johnson] on charges of mail fraud, wire fraud, and bank fraud.

United States v. Heineman, 2006 WL 2374580, *1 (N. D. Cal. Aug. 15, 2006). The step-by-step method Heineman and Johnson advertised over the internet and used to attempt to eliminate mortgages is as follows. They would have

the homeowner prepare and sign a promissory note as well as a loan agreement for the encumbered property. The homeowner then sends these documents to [Heineman and Johnson] with a cashier’s check “of $3,000 [to eliminate a] 1st mortgage, and $1,500 [to eliminate] a second mortgage or home equity line of credit.” Once this initial fee is received, Heineman and Johnson set up a Family Estate Amenable Complex trust in the homeowner’s name, i.e., the Frances Kenny Family Trust. Heineman and Johnson name themselves the trustees. Title to the homeowner’s property is transferred to the trust.

Now in charge as trustees, Heineman and Johnson approach the bank or lending institution that lent the homeowner the money to purchase the property. They make a “Presentment” to the bank in the form of “a cash-backed bond in double-amount of the promissory note.” The “bond” is allegedly “a valid, rated instrument backed by a $120 Million Letter of Credit against the Assets of an 85-year old, $800 Million Swiss Trust Company.” This is essentially an offer to the lender to satisfy the borrower’s indebtedness. The alleged “bond,” however, is a ploy.

. . . .

In addition to the “bond,” Heineman and Johnson hire “Trustee lawyers” to “begin the legal process by sending out a legal complaint in the form of a CPA Report that outlines 40 or more different federal laws that have been violated in the ‘lending process.'” The lending institution thereafter has a certain time frame within which to respond to the complaint. Purportedly, the homeowner will be notified by plaintiffs’ legal team when the loan is “satisfied.” The homeowner’s “lender may or may not let [you] know or acknowledge this.”

Once the loan is satisfied, “re-financing begins.” The homeowner is told to “refinance [his] property at the maximum loan to value ratio possible” with a new lender. The alleged “purpose of this new re-financing is for you, the client, to compensate the Provider and CCR.” Heineman and Johnson are the “Provider.” They run CCR. The proceeds from this new loan are disbursed as follows: “The Provider receives 50%. CCR receives 25%. You, the client, receives the other 25%.” This entire process takes “5-7 months in most cases.” And, “[t]he end result is that the [homeowner] gets free and clear title to the home and a good amount of cash in hand.”

[Heineman and Johnson], however, perpetrate a fraud to “satisfy” the original indebtedness. One of the documents Heineman and Johnson present to the bank or lending institution is entitled a “power of attorney.” This document demands that the lender sign and thereby acknowledge that it has given the homeowner “vapor money” in exchange for an interest (via a deed of trust) in the subject property at the time of financing. A provision of this “power of attorney” provides that the lender’s “silence is deemed consent.” When the lender fails to respond, [Heineman and Johnson] execute the power of attorney. They then sign a deed of reconveyance reconveying the lender’s security interest in the property to Heineman and Johnson. The forged power of attorney and the deed of reconveyance are duly recorded at the county recorder’s office. The county’s records thus show a power of attorney from the lender granting Heineman and Johnson the right to sign the deed of reconveyance and the reconveyance from the original lender. The title seems clear and unencumbered. The lender is unaware of the maneuver.

[Heineman and Johnson] then turn around and from an unsuspecting new lender seek a loan to refinance the property. When the new lender conducts a preliminary title search, it discovers the power of attorney and deed of reconveyance, both of which appear to have been validly executed. From the new lender’s point of view, the property appears to be unencumbered. And it is thus willing to refinance the property.

. . . .

At the conclusion of this process, the borrower is in even worse condition than when he or she first looked to [Heineman and Johnson] for debt relief. Two lenders believe that they have valid security interests in the subject property. When the homeowner defaults on both loans, both lenders commence foreclosure proceedings. In response, Heineman and Johnson, as trustees, file a bankruptcy petition on behalf of the borrower or file suit alleging that no enforceable debt accrued from either lender because the loans were funded through wire transfers rather than cash. Fifteen such lawsuits were filed in [the Northern District of California] on such a “vapor money” theory.

Frances Kenny Family Trust v. World Sav. Bank FSB, 2005 WL 106792 at *1-*3 (N. D. Cal., Jan. 19, 2005).

The following facts are taken from Rosen’s Amended Complaint and from the exhibits attached to her complaint and to U.S. Bank’s Answer. They demonstrate a pattern strikingly and disturbingly similar to the one described above. In December 2004, Rosen quitclaimed her property located on Wellesley Drive in Albuquerque, NM to Heineman and Johnson, as Trustees of the Rosen Family Trust. See Doc. 17, Ex. B ¶ 4.A. Colonial Savings held a mortgage secured by the Wellesley property. On March 3, 2005, Heineman, acting as “Attorney-in-Fact” for Colonial Savings, executed and recorded a notarized “Discharge of Mortgage” purporting to release Rosen from her mortgage of $86,250. Id. Ex. A. The Discharge stated that the mortgage had been “fully paid, satisfied, and discharged” and that Heineman’s power of attorney to act on behalf of Colonial Savings was granted “through the doctrine of agency by estoppel.” Id. The Vice President of Colonial Savings, however, recorded an “Affidavit of Fraudulent Recording of Discharge of Mortgage,” disputing that Heineman had any authority to act on Colonial’s behalf or discharge the mortgage and attesting that the note and mortgage had not been paid. Id.

On April 27, 2005, Rosen submitted a loan application to Defendant American Mortgage Specialists, Inc. (“American Mortgage”), a mortgage broker located in Arizona, for the purpose of refinancing the Wellesley property. See Am. Compl. at ¶¶ 8, 10-11 & Ex. A (Doc. 13). Rosen subsequently executed a note for $198,305 in favor of EquiFirst, secured by a Deed of Trust on the Wellesley property. See id. Ex. A, B. The mortgage provides that, if the note was sold or the Loan Servicer was changed, EquiFirst would give Rosen written notice, together with “any other information RESPA requires.” Id. Ex. B at 13.

Rosen signed the note and mortgage on May 17, 2005. See id. at 16. The loan was closed that same day, and proceeds were disbursed on May 23, 2005, including over $29,000 to third-party creditors. See Am. Compl. Ex. G. Colonial Savings is not included in the list of payoff recipients. See id.

Lines 801, 812, and 814 of the closing statement, under the heading “ITEMS PAYABLE IN CONNECTION WITH LOAN,” show that a 1% “loan origination fee” of $1983.05 as well as “OTHER BRK FEES” of $1762 were paid to American Mortgage from Rosen’s loan proceeds, and that a $940 “LENDER ORIGINATION” fee was paid to EquiFirst from Rosen’s loan proceeds. Id. at 2. In addition, line 813 of the closing statement states: “BROKER FEE PAID BY LENDER YSP $3,966.10 POC.[1]Id. This represented a yield spread premium that EquiFirst additionally paid to American Mortgage upon the loan closing.

On June 21, 2005, EquiFirst and Homecomings Financial notified Rosen that the servicing of her mortgage loan (i.e., the right to collect payment from her) had been transferred to Homecomings Financial and that the effective date of transfer would be June 29, 2005. See Am. Compl., Ex. C. The transfer of servicing did not affect the terms or conditions of the mortgage. See id. Further, during the 60 days following the effective date of transfer, timely loan payments made to EquiFirst could not be treated as late by Homecomings Financial. See id.

On July 11, 2005, Rosen executed a Grant Deed granting “to D. Scott Heineman and Kurt F. Johnson, Trustees of Rosen Family Trust, for a valuable consideration . . .” her Wellesley Drive property that secured her EquiFirst mortgage. Am. Compl. at ¶ 26, Ex. D. The complaint does not state whether Rosen gave Homecomings Financial or EquiFirst notice of her transfer of ownership of the property to the Trust. According to her “Affidavit of Sum Certain,” Rosen made only three mortgage payments between the time she closed the EquiFirst loan in May 2005 and August 7, 2006, when she filed the affidavit. See Doc. 22.

On January 23, 2006, EquiFirst granted, assigned, and transferred its beneficial interest in Rosen’s mortgage to Defendant U.S. Bank as Trustee. See Am. Compl., Ex. E. U.S. Bank initiated foreclosure proceedings on Rosen’s mortgage and the Wellesley Drive property on February 1, 2006, in state district court. See Am. Compl. ¶ 28. On May 11, 2006, Rosen mailed a “notice of rescission” to EquiFirst, U.S. Bank, and Homecomings Financial. See id. ¶ 42, Ex. I. She alleged a right to rescind her mortgage transaction based on her claim that, when she closed the loan in May 2005, “EquiFirst failed to meet the requirements to give me accurate material disclosures and the proper notice of the right to rescind.” Am. Compl., Ex. I ¶ 7. She also claimed that “[a] broker’s fee, in the form of a yield spread premium, was fraudulently assessed to the loan transaction, . . . [which] renders the HUD 1/Settlement Statement defective, inter alia, because it does not state to whom the fee was paid . . . [and because] the charge was encoded, to the extent that no consumer or most any other person could decipher [it] . . . .” Id. ¶ 10B. Rosen claimed that these failures extended her statutory right to rescind from the regular three-day period to a three-year period. See id. ¶ 10D. Homecomings Financial, through counsel, responded to Rosen’s May 11 letter on June 6, 2006. It sent Rosen a copy of the Notice of Right to Cancel she signed on May 17, 2005, in which she acknowledged receipt of two copies of the Notice. See Am. Compl., Ex. H. It asserted that the abbreviations of “YSP” and “POC” “are standard terms within the mortgage banking industry” and that, if she’d had any concerns about those terms, she should have addressed them at closing. Id. Finding no basis for rescission, it refused to rescind the loan transaction.

Rosen filed her initial complaint in federal court on May 19, 2006, seeking declaratory and injunctive relief and monetary damages. See Doc. 1. She filed an amended complaint on July 17, 2006, that contains six claims. Count One is for rescission under 15 U.S.C. § 1635 and § 226.23 of Regulation Z of the Truth in Lending Act (“TILA”). See Am. Compl. ¶¶ 33, 48. She claims that recission “extinguishes any liability Plaintiff may have had to Defendants for finance or other charges arising from the [loan] Transaction,” id. ¶ 49, and that “Defendants [sic] failure to take action to reflect the termination of the security interest in the property within twenty . . . days of [her] rescission. . . releases [her] from any liability whatsoever to Defendants.” Id. ¶ 50.

Count Two alleges damages under 15 U.S.C. § 1640 for Defendants’ failure to comply with § 1635 after Defendants received Rosen’s rescission letter. Id. ¶¶ 51-52. Count Three is for recoupment of a statutory penalty provided under § 1640. In support, Rosen lists twenty-eight alleged violations of various federal and state statutes and regulations. See id. ¶¶ 54(a)-(bb).

Count Four alleges violation of a right to Equal Credit Opportunity as described in 12 C.F.R. § 202.14. In support, Rosen alleges that the Defendants failed to make clear and conspicuous disclosures, and that various documents were confusing. See id. ¶ 55.

Count Five alleges violations of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601-17. Rosen claims that Defendants failed to give her fifteen days notice before the loan servicing contract was assigned from EquiFirst to Homecomings Financials in violation of § 2605(b), see Am. Compl. ¶¶ 57-59, and that EquiFirst’s payment of the yield-spread premium to American Mortgage constituted an illegal fee or “kickback” violating 12 U.S.C. § 2607(a)[2], see id. ¶ 60. Additionally, she alleges that EquiFirst and American Mortgage engaged in “fee splitting” in violation of § 2607(d)[3]. Id. ¶ 61.

Court Six alleges violation of the New Mexico Unfair Practices Act, N.M.S.A. §§ 57-12-1 et seq., based on the same allegations that EquiFirst and American Mortgage engaged in illegal kickback and fee-splitting activities that caused her to pay a higher interest rate. See Am. Compl. ¶¶ 63-68, 76.

Rosen seeks: (i) a judicial declaration that she validly rescinded the loan and is not liable for any finance or other charges and has no liability whatsoever to Defendants; (ii) an order requiring Defendants to terminate their security interest in her home; (iii) an injunction enjoining Defendants from maintaining foreclosure proceedings or otherwise taking steps to deprive her of ownership of the property; (iv) an award of statutory damages and penalties; and (v) attorney fees. See id. at 26-27.

II. LEGAL STANDARDS

U.S. Bank’s motion to dismiss is brought pursuant to Fed R. Civ. P. 12(b)(6). It asserts that Rosen has failed to state claims under particular statutes and that other claims are time-barred. It urges the Court to abstain from asserting jurisdiction over any remaining claims that should be resolved in the pending state foreclosure action. EquiFirst moves for dismissal under Fed. R. Civ. P. 12(c) (“Judgment on the Pleadings”), asserting that it is entitled to judgment as a matter of law on Counts One through Four and Count Six, and on part of Count Five of Rosen’s amended complaint. In resolving motions brought under either Rule 12(b)(6) or 12(c), the Court must

accept all facts pleaded by the non-moving party as true and grant all reasonable inferences from the pleadings in favor of the same. Judgment on the pleadings should not be granted “unless the moving party has clearly established that no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law.” United States v. Any & All Radio Station Transmission Equip., 207 F.3d 458, 462 (8th Cir. 2000). As with . . . motions to dismiss under Rule 12(b)(6), documents attached to the pleadings are exhibits and are to be considered in [reviewing] . . . [a] 12(c) motion. See Hall v. Bellmon, 935 F.2d 1106, 1112 (10th Cir. 1991); Fed. R. Civ. P. 10(c).

Park Univ. Enter., Inc. v. Am. Cas. Co. of Reading, PA, 442 F.3d 1239, 1244 (10th Cir. 2006).

It is true that dismissal under Rule 12(b)(6) is a harsh remedy which must be cautiously studied, not only to effectuate the spirit of the liberal rules of pleading but also to protect the interests of justice. It is also well established that dismissal of a complaint is proper only if it appears to a certainty that plaintiff is entitled to no relief under any state of facts which could be proved in support of the claim.

Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir. 2006) (internal quotation marks and citations omitted). “The court’s function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff’s complaint alone is legally sufficient to state a claim for which relief may be granted.” Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991).

In reviewing a pro se complaint, a court applies the same legal standards applicable to pleadings counsel has drafted, but is mindful that the complaint must be liberally construed. See Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991). But “[t]he broad reading of the plaintiff’s complaint does not relieve the plaintiff of alleging sufficient facts on which a recognized legal claim could be based.” Id.

[T]he [pro se] plaintiff whose factual allegations are close to stating a claim but are missing some important element that may not have occurred to him, should be allowed to amend his complaint. Nevertheless, conclusory allegations without supporting factual averments are insufficient to state a claim on which relief can be based. This is so because a pro se plaintiff requires no special legal training to recount the facts surrounding his alleged injury, and he must provide such facts if the court is to determine whether he makes out a claim on which relief can be granted. Moreover, in analyzing the sufficiency of the plaintiff’s complaint, the court need accept as true only the plaintiff’s well-pleaded factual contentions, not his conclusory allegations.

Id. (citations omitted). The legal sufficiency of a complaint is a question of law. See Moore, 438 F.3d at 1039.

III. ANALYSIS

A. ROSEN FAILS TO STATE A CLAIM FOR RESCISSION.

In transactions covered by the TILA, the borrower is entitled to rescind the transaction. See § 1635(a). The right to rescind lasts for three days, if the lender has given the borrower the disclosures required by the TILA and a notice of the right to rescind; the right lasts up to three years if the lender fails to give the requisite disclosures and notice, unless the borrower sells or transfers the property to someone else before the end of the three-year period[4]. See § 1635(f). EquiFirst asserts that Rosen’s right to rescind expired by operation of law upon her transfer of her ownership interest in the Wellesley Drive property to Heineman and Johnson as Trustees of the Rosen Family Trust. Rosen contends, however, that because she did not actually sell the Wellesley Drive property and maintains a beneficial interest in remaining in the house (apparently by the terms of the Trust, which is not part of the record), her right to rescind has not expired.

Congress gave the Board of Governors of the Federal Reserve System broad authority to promulgate extensive regulations implementing the TILA, see 15 U.S.C. § 1604(a), which it calls Regulation Z, see 12 C.F.R. § 226.1(a). In interpreting and implementing § 1635(f), Regulation Z specifically provides that the borrower’s right to rescind immediately expires not only “upon sale of the property,” but also “upon transfer of all of the [borrower’s] interest in the property.” 12 C.F.R. § 226.23(a)(3). The parties do not point to anything within the TILA, Regulation Z, or case law that further defines the extent of the borrower’s interest that must be transferred in order to trigger expiration of the right to rescind, and the Court has found none in its own research.

But the Court concludes that the words “all of the [borrower’s] interest” means all of the borrower’s ownership or title interest for several reasons. First, the Board clarified through § 226.23(a)(3) that something less than an outright sale of the property triggers expiration of the right to rescind. Second, because TILA provides for penalties when a lender fails to comply with rescission requirements and gives the lender only twenty days to return earnest money, down payments, and accrued interest and payments and to remove the security interest after receiving notice of the recission letter, see 15 U.S.C. § 1635(b), the lender must be able to quickly ascertain whether the borrower still legally owns the property securing the loan and has a statutory right to rescind. The only way to timely accomplish this goal is to examine the real property records in the county where the real property title is recorded. If, as here, those records demonstrate that the borrower has transferred her ownership and legal interests in the property, for valuable consideration, to another entity controlled by someone other than the borrower, the lender can reasonably contest the borrower’s right to rescission without fear of penalty. Trust documents that may contractually grant various types of beneficial interests after the sale or transfer of all of a borrower’s ownership interest in property are not generally filed in the public records, and a lender should not be required to assume that a beneficial interest of some sort may secretly exist that would hypothetically extend the borrower’s right to rescission. It is therefore consistent with the TILA’s goals to interpret “interest” as “ownership interest. See Williams v. Homestake Mortgage Co., 968 F.2d 1137, 1140 (11th Cir. 1992) (noting that “another goal of § 1635(b) [‘s recission requirement] is to return the parties most nearly to the position they held prior to entering the transaction”).

“Although the right to rescind is statutorily granted [in the TILA], it remains an equitable doctrine subject to equitable considerations.. . . Thus, district courts are to consider traditional equitable notions in applying [the TILA’s] statutory grant of rescission.” Brown v. Nat’l Permanent Fed. Sav. & Loan Ass’n , 683 F.2d 444, 447 (D.C. Cir. 1982); see In re Ramirez, 329 B.R. 727, 738 (D. Kan. 2005) (stating that, “[r]escission, whether statutory or common law, is an equitable remedy. Its relief, in design and effect, is to restore the parties to their pre-transaction positions. The TILA authorizes the courts to apply equitable principles to the rescission process. . . . [W]ithin the context of the TILA, rescission is a remedy that restores the status quo ante.”). Because Rosen has transferred her ownership of the property to a third party, the parties cannot be returned to their pre-transaction positions, which would unfairly prejudice EquiFirst if she maintained the right to recission. Cf., e.g., Powers v. Sims & Levin, 542 F.2d 1216, 1221-22 (4th Cir. 1976) (holding that a court could condition the borrowers’ continuing right of rescission upon tender to the lender of all of the funds spent by the lender in discharging the earlier indebtedness of the borrowers as well as the value of the home improvements). Without legal ownership of the Wellesley property to use as security for another mortgage, Rosen most likely could not return the $198,305 EquiFirst gave to her and her creditors. Equity therefore requires that the Court interpret § 226.23(a)(3) to provide for expiration of the right to rescission upon the transfer of a borrower’s ownership interest in the property securing a loan. See Beach v. Ocwen Fed. Bank, 523 U.S. 410, 411-12, 417-19 (1998) (noting that “a statutory right of rescission could cloud a bank’s title on foreclosure, [so] Congress may well have chosen to circumscribe that risk” by “governing the life” of the right to rescission with absolute expiration provisions under § 1635(f), “while permitting recoupment damages regardless of the date a collection action may be brought,” and holding that a borrower may not assert the right to rescind as an affirmative defense in a collection action after the right has expired by operation of law).

Finally, TILA is a strict liability statute. See Mars v. Spartanburg Chrysler Plymouth, Inc., 713 F.2d 65, 67 (4th Cir. 1983) (“To insure that the consumer is protected, as Congress envisioned, requires that the provisions of [the TILA and Regulation Z] be absolutely complied with and strictly enforced.”); Thomka v. A.Z. Chevrolet, Inc., 619 F.2d 246, 248 (3d Cir.1980) (noting that the TILA and its regulations mandate a standard of disclosure of certain information in financing agreements and enforce that mandate by “a system of strict liability in favor of consumers who have secured financing when this standard is not met”). There should, therefore, be a bright line delineating the borrower’s and lender’s rights and responsibilities. Interpreting § 226.23(a)(3) to mean that transfer of all of the borrower’s ownership interest in the property securing a loan triggers expiration of the right to rescission preserves an easily-ascertainable bright line.

The Court concludes that, when Rosen transferred her ownership interest in the Wellesley Drive property to a Trust with Trustees other than herself on July 11, 2005, her right to rescission expired that same date by operation of law. Her May 11, 2006, recission letter was untimely and ineffective. She therefore cannot state a cause of action for rescission, and Count One must be dismissed. Accordingly, her claims stated in Count Two for monetary damages and penalties arising from Defendants’ refusal to rescind the refinancing contract must also be dismissed.

B. CLAIMS FOR DAMAGES UNDER TILA ARE TIME BARRED.

“Section 1640 is a general ‘civil liability’ section in the TILA. In subsection (a) it provides for either actual and/or statutory damages for various TILA violations” set forth in parts B, D, and E of the subchapter. Baker v. Sunny Chevrolet, Inc., 349 F.3d 862, 870 (6th Cir. 2003); § 1640(a) (providing liability for creditors who fail to comply with “any requirements imposed under this part, including any requirement under section 1635 of this title, or part D or E of this subchapter”). Count Three, for recoupment of a statutory penalty provided under § 1640 alleges violations of not only TILA, but also of various other non-TILA regulations and the New Mexico UCC. Insofar as Rosen attempts to recover damages for violation of statutes not listed in § 1640(a), she has failed to state a claim.

Further, her claims for failing to disclose information or otherwise violating subchapter B at the time of closing must be dismissed as time barred. As both U.S. Bank and EquiFirst point out, claims for damages under § 1640 of TILA have a one-year limitations period. See § 1640(e) (“Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation . . . .”). A review of Rosen’s complaint reveals that all alleged violations of subchapter B occurred at or before closing on May 17, 2005, but she did not file her complaint until more than one year later. Count Three must be dismissed.

D. ROSEN FAILS TO STATE A CLAIM FOR VIOLATION OF THE EQUAL CREDIT OPPORTUNITY ACT.

The Equal Credit Opportunity Act, codified at 15 U.S.C. § 1691-1691(f), makes it unlawful for a creditor to discriminate “on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); [] because all or part of the applicant’s income derives from any public assistance program; or [] because the applicant has in good faith exercised any right under [TILA].” § 1691(a). Rosen’s amended complaint alleges no facts to support a claim for violation of the Act, and she made no argument in her response brief to support amendment. Count Four must be dismissed.

E. RESPA CLAIMS MUST BE DISMISSED.

Rosen attempts to assert two types of claims under RESPA in Count Five of the Amended Complaint. The first is for violation, on June 21, 2005, of a provision that requires creditors to give a borrower fifteen days notice before transferring an account to a different loan servicer. See § 2605(b)(2)(A) (“Except as provided under subparagraphs (B) and (C), the notice required under paragraph (1) shall be made to the borrower not less than 15 days before the effective date of transfer of the servicing of the mortgage loan.”). To recover under § 2605, the borrower must allege and show actual damages suffered “as a result of the failure.” § 2605(f)(1)(A). If the borrower also alleges and establishes that the violation is a “pattern or practice of noncompliance,” a court may additionally award statutory damages “not to exceed $1000.” § 2605(f)(1)(B). Although the Amended Complaint neither alleges that Rosen suffered any actual damages as a result of EquiFirst’s failure to give her a full 15-days notice of the change of loan servicer, nor alleges that EquiFirst engaged in a pattern or practice of not complying with the 15-day notice requirement, Rosen requests that the Court “reduce the amount owed by Plaintiff by the amount of statutory and actual damages available under RESPA.” Am. Compl. at 22.

Because she has not alleged she suffered actual damages, the Court concludes that Rosen has failed to state a claim for damages under § 2605 and that she should not be given an opportunity to amend her complaint because none of the Defendants have attempted, in this federal suit, to bring any claims for money Rosen owes them. Any claims for recoupment that Rosen may be able to bring are relevant to the state foreclosure action and should be litigated there. Cf. Demmler v. Bank One NA, 2006 WL 640499, *5 (S.D. Ohio, Mar. 9, 2006) (alternatively holding that the plaintiff’s claims brought pursuant to TILA and other federal statutes against lending bank and challenging validity of loan were barred because they were compulsory counterclaims that should have been raised in the foreclosure action in state court).

Rosen alleges that Defendants violated § 2607 by giving “kickbacks” or engaging in “fee-splitting” on May 17, 2005, when EquiFirst paid a broker’s fee to American Mortgage as a yield-spread premium. The statute of limitations for violations of § 2607 is one year from the date the violation is alleged to have occurred. See 12 U.S.C. § 2614. The Court concludes that Rosen’s claims for violation of § 2607 are barred by the one-year statute of limitations. See Snow v. First Am. Title Ins. Co., 332 F.3d 356, 359-60 (5th Cir. 2003) (“The primary ill that § 2607 is designed to remedy is the potential for ‘unnecessarily high settlement charges,’ § 2601(a), caused by kickbacks, fee-splitting, and other practices that suppress price competition for settlement services. This ill occurs, if at all, when the plaintiff pays for the service, typically at the closing. Plaintiffs therefore could have sued at that moment, and the standard rule is that the limitations period commences when the plaintiff has a complete and present cause of action.”) (internal quotation marks and bracket omitted). Rosen’s argument that her claim survives the one-year statute of limitations because it is one for recoupment is unavailing because Defendants have not sued her by way of counter-claim in this federal suit. Again, any claims for recoupment should have been brought as a defense in the state foreclosure action. See 15 U.S.C. § 1640(e); Beach, 523 U.S. at 417-19.

F. THE COURT WILL NOT TAKE SUPPLEMENTAL JURISDICTION OVER POTENTIAL STATE-LAW CLAIMS.

The Tenth Circuit has instructed district courts that, when federal jurisdiction is based solely upon a federal question, absent a showing that “the parties have already expended a great deal of time and energy on the state law claims, . . . a district court should normally dismiss supplemental state law claims after all federal claims have been dismissed, particularly when the federal claims are dismissed before trial.” United States v. Botefuhr, 309 F.3d 1263, 1273 (10th Cir. 2002); see Sawyer v. County of Creek, 908 F.2d 663, 668 (10th Cir. 1990) (“Because we dismiss the federal causes of action prior to trial, we hold that the state claims should be dismissed for lack of pendent jurisdiction.”). None of the factors identified in Thatcher Enterprises v. Cache County Corp., 902 F.2d 1472, 1478 (10th Cir. 1990) — “the nature and extent of pretrial proceedings, judicial economy, convenience, or fairness” — would be served by retaining jurisdiction over any potential state-law claim in this case. No discovery has been conducted in this case, and no energy has been expended on the potential state-law claims. The Court will dismiss Rosen’s state-law claims for violation of the New Mexico Unfair Practices Act contained in Count Six of her amended complaint.

NOW, THEREFORE, IT IS ORDERED that all Counts of Rosen’s federal complaint are DISMISSED.

[1] “YSP” is an abbreviation for “yield spread premium” and “POC” is an abbreviation for “paid outside closing.” Am. Compl., Ex. H

[2] Although Rosen cites 12 U.S.C. § 1207(a) as the statute violated, there is no such statute and her citation to 24 C.F.R. § 3500.14 refers to violations of § 2607. The Court therefore construes her complaint to allege violations of § 2607.

[3] See footnote 2.

[4] Section 1635 provides, in relevant part:

(a) Disclosure of obligor’s right to rescind

Except as otherwise provided in this section, in the case of any consumer credit transaction . . . in which a security interest . . . is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Board, to any obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, appropriate forms for the obligor to exercise his right to rescind any transaction subject to this section.

. . . .

(f) Time limit for exercise of right

An obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor . . . .

%d bloggers like this: