There is a new wave of happenings in the loss mitigation marketplace.  When a loan servicer or lender fails to modify a loan (especially loans that are upside down and in need of principal reduction) some buyers are deciding to blow off the lender and just walk away from the property.

Well of course the lenders are up in arms about this financial preservation strategy (as I learned in contract law many years ago, this is the concept of “efficient breach” wherein sometimes it is simply in ones best interest to breach a contract).  Of course the rules change when the efficient breach is perpetrated on the mighty banks.  To them this is “mortgage fraud” or “buy and bail” or “unethical” or “immoral.”

What banks fail to realize is that if they would provide MEANINGFUL MODIFICATIONS WITH ALL THE TAXPAYER FUNDED BAILOUT MONEY THEY RECEIVED PERHAPS PEOPLE WOULD NOT BE BAILING OUT ON THE LENDERS.

IF THE LENDERS (AND THEIR INVESTORS WHO INVESTED IN THE SECURITIZED LOANS) DO NOT WANT TO PROVIDE MEANINGFUL LOAN MODIFICATIONS BECAUSE THEY ARE SEEKING TO DO WHAT’S IN THEIR BEST INTEREST, SHOULD THEY REALLY BE SURPRISED THAT BORROWERS AND HOMEOWNERS ARE PROTECTING THEIR INTERESTS BY PURSUING WHAT SOME WOULD CALL A “STRATEGIC DEFAULT” STRATEGY.

Now, before you exercise these types of strategies, it would be wise to consult with a foreclosure defense lawyer to discuss your options, review your situation, and to analyze whether or not there is any liability in this regard.  Whether or not something is immoral or unethical is a different question than whether or not something is illegal and can result in civil liability.  Have your case reviewed.

IN THIS MARKETPLACE IT SEEMS THE TIDE IS SHIFTING TO AN EVERY MAN AND EVERY COMPANY FOR THEMSELVES APPROACH REGARDLESS OF THE IMPACT THAT MAY RESULT TO LOCAL NEIGHBORHOODS AND PEOPLE THAT ARE NOT IN DEFUAULT.  WHO IS TO BLAME IS A QUESTION OF WHICH CAME FIRST, THE CHICKEN OR THE EGG.

Option Arm Loan Litigation Questionnaire

MY COMMENTS ARE IN BOLD AND MERELY REPRESENT MY OPINION.

Chilton v. Federal Nat. Mortg. Ass’n, Slip Copy, 2009 WL 5197869 (E.D.Cal.)



ORDER RE PROPOSED ORDER TO SHOW CAUSE AND MOTION FOR TEMPORARY RESTRAINING ORDER



Plaintiff filed a complaint on December 16, 2009, alleging that Defendant, Federal National Mortgage Association, violated unspecified provisions of federal law within “Title 15 U.S.C. and/or Title 18 U.S.C.” because Defendant initiated non-judicial foreclosure on her property, located in Clovis, California, without possessing the genuine original note.” She advances no other bases for relief.

Plaintiff has also filed an “order to show cause and motion for temporary restraining order,” in an attempt to block the foreclosure process.
To obtain temporary or permanent injunctive relief, a plaintiff must demonstrate likelihood of success on the merits. Here, Plaintiff’s only legal theory has been resoundingly rejected as a basis for relief. It is well-established that non-judicial foreclosures can be commenced without producing the original promissory note.

THAT’S THE PART THAT HURTS. I SUPPOSE ANYONE WHO SHOWS UP ON FORECLOSURE DAY CLAIMING TO BE THE HOLDER OF THE LOAN (WHETHER IT IS MERS PRETENDING TO BE THE BENEFICIARY OR THE NOMINEE OF THE LENDER, THE LOAN SERVICER PRETENDING TO BE THE HOLDER OF THE LOAN OR SOME OTHER THIRD PARTY, LIKE WALLMART FOR EXAMPLE, CLAIMING TO BE THE HOLDER OF THE LOAN) GETS AN UNFETTERED RIGHT TO FORECLOSE, AND A FREE PASS FROM ANY JUDICIAL SCRUTINY WHATSOEVER.

The Court went on to state:

“Non-judicial foreclosure under a deed of trust is governed by California Civil Code Section 2924 which relevant section provides that a “trustee, mortgagee or beneficiary or any of their authorized agents” may conduct the foreclosure process.” California courts have held that the Civil Code provisions “cover every aspect” of the foreclosure process, (case cited), and are “intended to be exhaustive,”(another case cited). There is no requirement that the party initiating foreclosure be in possession of the original note.

AFTER LEVELING THIS BLOW THE COURT CITED A FEW OTHER CASES THAT RESULTED IN THE SAME OUTCOME FOR PLAINTIFFS ASSERTING THE “PRODUCE THE NOTE” FORECLOSURE DEFENSE STRATEGY (OBVIOUSLY IN AN ATTEMPT TO TELL FUTURE LITIGANTS IN CALIFORNIA “GIVE UP TRYING TO VERIFY ANYONES CREDENTIALS”):

(1) See, e.g., Nool v. HomeQ Servicing, — F.Supp.2d —-, 2009 WL 2905745 (Sep. 4 2009) (”There is no requirement that the party initiating foreclosure be in possession of the original note.”);

(2) Candelo v. NDEX West, LLC, 2008 WL 5382259, at *4 (E.D.Cal. Dec.23, 2008) (”No requirement exists under statutory framework to produce the original note to initiate non-judicial foreclosure.”);

(3) Putkkuri v. ReconTrust Co., 2009 WL 32567, *2 (S.D.Cal. Jan.5, 2009) (”Production of the original note is not required to proceed with a non-judicial foreclosure.”);

(4) Phillips v. MERS Mortgage Electronic Registration Systems, 2009 WL 3233865, 9 (E.D.Cal.2009); Vargas v. Reconstruction Co., 2008 U.S. Dist. LEXIS 100115, at *8-9 (E.D.Cal. Dec. 1, 2008).


WE HAVE PREVIOUSLY DISCUSSED THE KANSAS SUPREME COURT CASE THAT DISCUSSED THE ROLE OF MERS IN WHICH THE COURT SEEMED TO SUGGEST THAT MERS WAS NOT A BENEFICIARY UNDER THE DEED OF TRUST JUST BECAUSE THEY SAY THEY ARE IN THE DOCUMENT. THE COURT ADDRESSED PLAINTIFF’S RELIANCE ON THAT CASE:

“Plaintiff’s reliance on Landmark National Bank v. Kessler, 216 P.3d 158, 2009 Kan. LEXIS 834 (Kan.2009), is misplaced. That case concerned a company, Mortgage Electronic Registration Systems, Inc. (”MERS”), that acted on behalf of a lender to finalize a second mortgage on Kessler’s home. For procedural reasons not relevant to the present case, it became necessary for the Kansas court to determine whether MERS possessed an interest in the second mortgage, eventually concluding that under the specific facts of that case, MERS was more like an agent than a buyer/owner of the note.”

THE COURT CONTINUED:

“In reaching this conclusion, the Landmark court noted: 
Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. “The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. [Citation omitted.] Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. [Citation omitted.] The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo.App.2009).”


THE COURT CHIMED IN ON THIS LEGAL REQUIREMENT:

“This language merely stands for the proposition that one possessing the deed of trust cannot foreclose on a mortgage without (1) also possessing some interest in the promissory note, or (2) obtaining permission to act as agent of the note-holder. This has nothing whatsoever to do with possession of the “original” promissory note document, i.e., the original piece of paper with original signatures, etc., the possession of which is not required to initiate non-judicial foreclosure in California. Because Plaintiff cannot possibly establish any likelihood of success on her current claim for relief, it is not necessary to set her motion for temporary injunctive relief for hearing. Her motion is DENIED. IT IS SO ORDERED.”


There you have it friends, as we have been telling callers to our office seeking foreclosure defense, DO NOT RELY ON “PRODUCE THE NOTE” AS A SILVER BULLET FORECLOSURE DEFENSE THAT IS GOING TO STOP YOUR FORECLOSURE WITH AN INJUNCTION AND GET YOUR HOUSE FOR FREE. IF THERE ARE GLARING IRREGULARITIES, AND OTHER LEGAL GROUNDS TO GET YOU INTO COURT VALIDLY, THEN YOU MAY WANT TO TAG ON THIS CLAIM AND SEE IF YOU CAN GET A DIFFERENT OUTCOME FROM A DIFFERENT JUDGE, BUT SUFFICE IT TO SAY AS A STAND-ALONE LEGAL THEORY, THERE IS SIMPLY NOT MUCH TEETH TO THE THEORY. MOST OF THE CASES WHERE YOU HEAR OF SOME SUCCESS COME FROM FLORIDA AND OHIO AND OTHER “JUDICIAL FORECLOSURE” STATES WHERE THE LENDER IS FORCED TO FILE IN COURT TO START THE FORECLOSURE PROCESS. IN THESE CASES, THE ISSUE BECOMES A QUESTION OF “STANDING” AND “REAL PARTY IN INTEREST.” THERE IS ALSO THE BANKRUPTCY ANGLE THAT WE WILL BE EXPLORING IN GREATER DETAIL IN FUTURE POSTS.

____________________________________________________________________________________________________________________________________________________________________________

In a similar case, NEWBECK v. WASHINGTON MUTUAL BANK, Slip Copy, 2010 WL 291821 (N.D.Cal.), the Court essentially held the same way when a Plaintiff tried to argue “produce the original note” as a strategy to set aside a foreclosure sale that had already occurred. In this case the Court first discussed the dreaded issue of challenging a foreclosure sale that had already been finalized, and the Court’s comments shed light on how one-sided the laws are when you dare take on a “lender” in Court

“Plaintiffs ask the Court to set aside Washington Mutual’s foreclosure sale of their property. They assert that Washington Mutual did not have possession of the original mortgage note or the deed of trust under which it was secured and, as a result, it was not entitled to foreclose. A plaintiff seeking to set aside a foreclosure sale must first allege tender of the amount of the secured indebtedness. Abdallah v. United Savings Bank, 43 Cal.App.4th 1101, 1109, 51 Cal.Rptr.2d 286 (1996) (citing FPCI RE-HAB 01 v. E & G Investments, Ltd., 207 Cal.App.3d 1018, 1021-22, 255 Cal.Rptr. 157 (1989)); Smith v. Wachovia, 2009 WL 1948829, at *3 (N.D.Cal.). Without pleading tender or the ability to offer tender, a plaintiff cannot state a cause of action to set aside a foreclosure sale. Karlsen v. Am. Savings & Loan Ass’n, 15 Cal.App.3d 112, 117, 92 Cal.Rptr. 851 (1971) (citing Copsey v. Sacramento Bank, 133 Cal. 659, 662 (1901)); Smith, 2009 WL 1948829, at * 3 (citing Karlsen ). Plaintiffs allege neither tender nor their ability to offer tender. Thus, they do not state a claim to set aside the foreclosure sale.

THIS MEANS, IF YOU ARE CHALLENGING A FORECLOSURE SALE AND SEEK TO SET IT ASIDE (ON WHATEVER PROPER GROUNDS YOU MAY HAVE) YOU NEED TO AT LEAST ALLEGE A WILLINGNESS AND ABILITY TO TENDER. IF ALL ELSE FAILS, YOU MAY WANT TO TELL THE JUDGE THAT YOU WILL TENDER THE FULL BALANCE DUE AFTER YOU COLLECT ON YOUR FRAUD JUDGEMENT. SOMETIMES THIS MAY BE ALL YOU HAVE WHEN YOU ARE WAY UPSIDE DOWN ON YOUR PROPERTY.

THE COURT THEN WENT ON TO DISCUSS WHAT MIGHT HAPPEN EVEN IF YOU COULD TENDER:

“Even if they alleged tender, the basis on which they appear to seek relief does not support their claim. In California, there is no requirement that a trustee produce the original promissory note prior to a non-judicial foreclosure sale. See, e.g., Pantoja v. Countrywide Home Loans, Inc., 640 F.Supp.2d 1177, 1186 (N.D.Cal.2009); Smith, 2009 WL 1948829, at *3; Neal v. Juarez,2007 WL 2140640, *8 (S.D.Cal.) (citing R.G. Hamilton Corp. v. Corum, 218 Cal. 92, 94, 97, 21 P.2d 413 (1933); Cal. Trust Co. v. Smead Inv. Co., 6 Cal.App.2d 432, 435, 44 P.2d 624 (1935)).California Civil Code Sections 2924 through 2924k “provide a comprehensive framework for the regulation of a non-judicial foreclosure sale pursuant to a power of sale contained in a deed of trust.” Knapp v. Doherty, 123 Cal.App.4th 76, 86, 20 Cal.Rptr.3d 1 (2004) (quoting Moeller v. Lien, 25 Cal.App.4th 822, 830, 30 Cal.Rptr.2d 777 (1994)). Knapp explains the non-judicial foreclosure process as follows: Upon default by the trustor [under a deed of trust containing a power of sale], the beneficiary may declare a default and proceed with a nonjudicial foreclosure sale. The foreclosure process is commenced by the recording of a notice of default and election to sell by the trustee. After the notice of default is recorded, the trustee must wait three calendar months before proceeding with the sale. After the 3-month period has elapsed, a notice of sale must be published, posted and mailed 20 days before the sale and recorded 14 days before the sale. Knapp, 123 Cal.App.4th at 86, 20 Cal.Rptr.3d 1 (citation omitted).

I SUPPOSE YOU ARE NEVER ALLOWED TO ASK WHO THE “BENEFICIARY” IS OR MAKE ANYONE PROVE THAT POINT BEFORE THEY TAKE YOUR HOUSE. ARE YOU ALSO ALLOWED TO ASK WHO THE BENEFICIARY IS FOR PURPOSES OF COMPLIANCE WITH CALIFORNIA CIVIL CODE SECTION 2923.5 AND THE DECLARATION THAT IS MADE UNDER THIS SECTION? WE WILL DISCUSS THIS ISSUE IN ANOTHER BLOG POST.

ANYWAY, I DIGRESS, THE COURT CONTINUED:

“A properly conducted nonjudicial foreclosure sale constitutes a final 13 adjudication of the rights of the borrower and lender.” Plaintiffs have not pointed to controlling authority to show that this statutory scheme requires production of the original promissory note or deed of trust. Thus, even if they alleged tender, to the extent that they allege irregularities in the foreclosure sale based on Washington Mutual’s failure to produce the original promissory note or deed of trust, they do not state a claim.

AS DISCUSSED ABOVE, ONLY OUT OF STATE CLAIMS FOR PRODUCE THE NOTE WERE CITED (THESE COME FROM THE JUDICIAL FORECLOSURE STATES).

“Plaintiffs cite various out-of-state cases, which apply non-California law to judicial foreclosure actions. See In re Foreclosure Actions, 2007 WL 4034554 (N.D.Ohio); In re Foreclosure Cases, 2007 WL 3232430 (N.D.Ohio); Landmark Nat’l Bank v. Kessler, 289 Kan. 528, 216 P.3d 158 (2009); U.S. Bank Nat’l Ass’n v. Ibanez, 2009 WL 3297551 (Mass.Land Ct.). Because these cases do not apply California’s non-judicial foreclosure sale statutes, they do not support Plaintiffs’ position.”
SO THERE YOU HAVE IT, MORE PROOF OF THE MOUNTAIN YOU MUST CLIMB TO GET TO THE PROMISED LAND. AS WE TELL OUR CLIENTS, FORECLOSURE DEFENSE IS NOT AN EASY BUSINESS.

_____________________________________________________________

KEYWORDS: CALIFORNIA FORECLOSURE DEFENSE LAWYER / PHOENIX FORECLOSURE DEFENSE LAWYER / ARIZONA LOAN MODIFICATION LAWYER / PRODUCE THE NOTE FORECLOSURE DEFENSE STRATEGY / SCOTTSDALE LOAN MODIFICATION / PHOENIX BANKRUPTCY LAWYER / PHOENIX BK ATTORNEY / NEWPORT BEACH FORECLOSURE LAWYER / INJUNCTION TO STOP FORECLOSURE / TRO / LIS PENDENS / SB1137 / FILE CHAPTER 7 BANKRUPTCY / MERS / SECURITIZED LOANS / QWR.

_____________________________________________________________

AUTHORS NOTE: IF THE CALIFORNIA FORECLOSURE STATUTES GOVERN THE FORECLOSURE SALE PROCESS, AND IF NOTHING ELSE REALLY MATTERS, THEN YOU NEED TO TAKE A CLOSE LOOK AT WHETHER THAT STATUTE IS BEING COMPLIED WITH WHEN LOOKING TO OBTAIN AN INJUNCTION TO HALT FORECLOSURE.

This is an update for all of our Clients who have World Savings and Option Arm Loans.  As you may have heard on our radio show www.LoanModRadio.com (The Foreclosure Defense Show), we have been successful helping many homeowners who have World Savings and Option Arm Loans get loan modifications without charging any advance fees.  Please note, our program may only be last another month or so for reasons beyond our control.

We have documentable principal reduction (however this is no guarantee of such) in a good number of cases where the Wachovia or World Savings Homeowner was upside-down in their properties and a principal loan balance reduction was needed to make the modification work.

THIS MAY BE OUR LAST CALL FOR LOAN MODIFICATIONS FOR WORLD SAVINGS OPTION ARM LOANS AND WACHOVIA OPTION ARM LOANS.  IF YOU HAVE ONE OF THESE TYPES OF LOANS CALL US TO DISCUSS OUR FANTASTIC LOAN MODIFICATION PROGRAM.

PART OF THE REASON FOR OUR SUCCESS ON THE OPTION ARM LOANS COMES FROM OUR UNDERSTAND OF THESE PREDATORY LOANS.  YOU CAN LEARN MORE ABOUT NEGATIVE AMORTIZATION OPTION ARM LOANS AT WWW.OPTIONARMLAWYER.COM

The following article discusses general legal information on the topic of elder abuse and foreclosure defense. This article contains general legal information and not specific legal advice. In addition, the article, cases, and analysis may not be complete and comprehensive or up-to-date. Steve Vondran, Esq. is licensed to practice law in California and Arizona. He practices law in the area of Real Estate, Bankruptcy, and Foreclosure Defense. He can be reached at steve@vondranlaw.com.

INTRODUCTION TO ELDER ABUSE AND PREDATORY LENDING

The elderly population (over 65 years of age) is one of the fastest growing segments of society. Medical science is helping people live longer, more productive lives. However, it is fairly common knowledge that as each of us grow older, whether we like it or not, we lose some of our mental and physical capacities.

In the context of mortgage loans, it may mean that elderly persons become less able to comprehend sophisticated financial products such as Option Arm Loans (pay options ARM / “pick-a-pay loans) and Reverse Mortgages and other adjustable rate mortgage and interest-only loan products that differ from the traditional 30 year fixed rate mortgage most California homeowners grew up on.

The California Attorney General’s Office has issued a guide for “financial elder abuse.” In this guide, (which you can find at the Attorney General website), they state:

“Financial elder abuse is the theft of money or property from an elder….it can be as simple as taking money from a wallet and as complex as manipulating a victim into turning over property to an abuser.”

The publication goes on to state: “This form of abuse can be devastating because an elder victim’s life savings can disappear in the blink of an eye, leaving them unable to provide for their needs and afraid of what an uncertain tomorrow will bring.”

The guide discusses “recognizing the warning signs” and states: “while financial elder abuse can take many forms, the most widespread abuses include telemarketing fraud, identity theft, predatory lending, and home improvement and estate planning scams.” Telemarketing fraud could come in the form of dealing with a loan broker over the telephone who attempts to coerce an elderly homeowner into believing a certain type of loan (ex. An Option Arm Loan) is the best for the homeowner (when in fact the borrower has no ability to repay a loan that builds negative amortization and which is likely to “recast” in the near future), or falsely trumping up a homeowners income in order to ensure a loan is funded and the broker is paid.

In the section discussing “Predatory Lending” the publication states:

“More than 80% of Americans aged 50 and older are homeowners. Elders are often the target of unscrupulous lenders who pressure them into high-interest rate loans that they may not be able to repay. Older homeowners are often persuaded to borrow money through home equity loans for home repairs, debt consolidation, or to pay health care costs. These loans are sold as “miracle financial cure,” and homeowners are devastated to find out they cannot afford to pay off the loans, and as a result, may lose their home. Often these loans are packed with excessive fees, costly credit insurance, pre-payment penalties, and balloon payments.”

Even California Banker’s Association (an association of California Banker’s) discusses the concept of elder financial abuse on its website – www.calbankers.com – by stating “Common elder abuse scenarios – obtaining money or property by undue influence, misrepresentation, or fraud….” This suggests that even Banker’s in California realize that elder abuse is “common” and that it is wrongful. But what is to be done about it? What is to be done when lenders and brokers advise and “steer” and influence elder homeowners into entering into loan transactions with sophisticated non-traditional loan products and artificially falsify income documentation because they know there is no true ability to repay the loan, much less qualify for it in the first place.

This is precisely the scenario in many cases that we see in our role as foreclosure defense counsel for elderly homeowners facing foreclosure or facing eviction following foreclosure. It is against this back-drop that we must act, to what extent will the California Courts exercise their inherent equitable power to protect elderly homeowners (over 65 years of age at the signing of the loan documents or an elder dependent adult) where the loan product is seen to be the product of fraud or deception (such as steering, false trumping of income, intentional misrepresentations, or other fraudulent and deceptive business practices) perpetrated by predatory brokers, lenders and loan servicers who seek profit over fiduciary duty?

CALIFORNIA ELDER ABUSE LAW

•A.    California Elder Abuse Statute

CALIFORNIA CODES

WELFARE AND INSTITUTIONS CODE

SECTION 15600-15601

 INTRODUCTION SECTION

 15600. (a) The Legislature recognizes that elders and dependent

adults may be subjected to abuse, neglect, or abandonment and that

this state has a responsibility to protect these persons.

 (b) The Legislature further recognizes that a significant number

of these persons are elderly. The Legislature desires to direct

special attention to the needs and problems of elderly persons,

recognizing that these persons constitute a significant and

identifiable segment of the population and that they are more subject

to risks of abuse, neglect, and abandonment.

 (c) The Legislature further recognizes that a significant number

of these persons have developmental disabilities and that mental and

verbal limitations often leave them vulnerable to abuse and incapable

of asking for help and protection.

 (d) The Legislature recognizes that most elders and dependent

adults who are at the greatest risk of abuse, neglect, or abandonment

by their families or caretakers suffer physical impairments and

other poor health that place them in a dependent and vulnerable

position.

 (e) The Legislature further recognizes that factors which

contribute to abuse, neglect, or abandonment of elders and dependent

adults are economic instability of the family, resentment of

caretaker responsibilities, stress on the caretaker, and abuse by the

caretaker of drugs or alcohol.

 (f) The Legislature declares that this state shall foster and

promote community services for the economic, social, and personal

well-being of its citizens in order to protect those persons

described in this section.

 (g) The Legislature further declares that uniform state

guidelines, which specify when county adult protective service

agencies are to investigate allegations of abuse of elders and

dependent adults and the appropriate role of local law enforcement is

necessary in order to ensure that a minimum level of protection is

provided to elders and dependent adults in each county.

 (h) The Legislature further finds and declares that infirm elderly

persons and dependent adults are a disadvantaged class, that cases

of abuse of these persons are seldom prosecuted as criminal matters,

and few civil cases are brought in connection with this abuse due to

problems of proof, court delays, and the lack of incentives to

prosecute these suits.

 (i) Therefore, it is the intent of the Legislature in enacting

this chapter to provide that adult protective services agencies,

local long-term care ombudsman programs, and local law enforcement

agencies shall receive referrals or complaints from public or private

agencies, from any mandated reporter submitting reports pursuant to

Section 15630, or from any other source having reasonable cause to

know that the welfare of an elder or dependent adult is endangered,

and shall take any actions considered necessary to protect the elder

or dependent adult and correct the situation and ensure the

individual’s safety.

 (j) It is the further intent of the Legislature in adding Article

8.5 (commencing with Section 15657) to this chapter to enable

interested persons to engage attorneys to take up the cause of abused

elderly persons and dependent adults.

 DEFINITIONS SECTION

 15610.07. “Abuse of an elder or a dependent adult” means either of

the following:

(a) Physical abuse, neglect, financial abuse, abandonment,

isolation, abduction, or other treatment with resulting physical harm

or pain or mental suffering.

15610.23. (a) “Dependent adult” means any person between the ages

of 18 and 64 years who resides in this state and who has physical or

mental limitations that restrict his or her ability to carry out

normal activities or to protect his or her rights, including, but not

limited to, persons who have physical or developmental disabilities,

or whose physical or mental abilities have diminished because of

age.

15610.25. “Developmentally disabled person” means a person with a

developmental disability specified by or as described in subdivision

(a) of Section 4512.

 15610.27. “Elder” means any person residing in this state, 65 years

of age or older.

15610.30. (a) “Financial abuse” of an elder or dependent adult

occurs when a person or entity does any of the following:

(1) Takes, secretes, appropriates, obtains, or retains real or

personal property of an elder or dependent adult for a wrongful use

or with intent to defraud, or both.

(2) Assists in taking, secreting, appropriating, obtaining, or

retaining real or personal property of an elder or dependent adult

for a wrongful use or with intent to defraud, or both.

(3) Takes, secretes, appropriates, obtains, or retains, or assists

in taking, secreting, appropriating, obtaining, or retaining, real

or personal property of an elder or dependent adult by undue

influence, as defined in Section 1575 of the Civil Code.

(b) A person or entity shall be deemed to have taken, secreted,

appropriated, obtained, or retained property for a wrongful use if,

among other things, the person or entity takes, secretes,

appropriates, obtains, or retains the property and the person or

entity knew or should have known that this conduct is likely to be

harmful to the elder or dependent adult.

(c) For purposes of this section, a person or entity takes,

secretes, appropriates, obtains, or retains real or personal property

when an elder or dependent adult is deprived of any property right,

including by means of an agreement, donative transfer, or

testamentary bequest, regardless of whether the property is held

directly or by a representative of an elder or dependent adult.

UNDUE INFLUENCE FOR ELDER ABUSES PURPOSES: (AS REFERENCED ABOVE)

1575. Undue influence consists:

1. In the use, by one in whom a confidence is reposed by another,

or who holds a real or apparent authority over him, of such

confidence or authority for the purpose of obtaining an unfair

advantage over him;

2. In taking an unfair advantage of another’s weakness of mind;

or,

3. In taking a grossly oppressive and unfair advantage of another’s

necessities or distress.

 WRIT OF ATTACHMENT

 15657.01. Notwithstanding Section 483.010 (SEE BELOW) of the Code of Civil

Procedure, an attachment may be issued in any action for damages

pursuant to Section 15657.5 for financial abuse of an elder or

dependent adult, as defined in Section 15610.30. The other provisions

of the Code of Civil Procedure not inconsistent with this article

shall govern the issuance of an attachment pursuant to this section.

In an application for a writ of attachment, the claimant shall refer

to this section. An attachment may be issued pursuant to this section

whether or not other forms of relief are demanded.

 483.010. (a) Except as otherwise provided by statute, an attachment

may be issued only in an action on a claim or claims for money, each

of which is based upon a contract, express or implied, where the

total amount of the claim or claims is a fixed or readily

ascertainable amount not less than five hundred dollars ($500)

exclusive of costs, interest, and attorney’s fees.

(b) An attachment may not be issued on a claim which is secured by

any interest in real property arising from agreement, statute, or

other rule of law (including any mortgage or deed of trust of realty

and any statutory, common law, or equitable lien on real property,

but excluding any security interest in fixtures subject to Division 9

(commencing with Section 9101) of the Commercial Code). However, an

attachment may be issued where the claim was originally so secured

but, without any act of the plaintiff or the person to whom the

security was given, the security has become valueless or has

decreased in value to less than the amount then owing on the claim,

in which event the amount to be secured by the attachment shall not

exceed the lesser of the amount of the decrease or the difference

between the value of the security and the amount then owing on the

claim.

(c) If the action is against a defendant who is a natural person,

an attachment may be issued only on a claim which arises out of the

conduct by the defendant of a trade, business, or profession. An

attachment may not be issued on a claim against a defendant who is a

natural person if the claim is based on the sale or lease of

property, a license to use property, the furnishing of services, or

the loan of money where the property sold or leased, or licensed for

use, the services furnished, or the money loaned was used by the

defendant primarily for personal, family, or household purposes.

(d) An attachment may be issued pursuant to this section whether

or not other forms of relief are demanded.

•B.     California Elder Abuse Case-Law

                                                          REPORTED DECISIONS

•1.      Zimmer v. Nawabi, 566 F. Supp.2d 1025, 2008 WL 7123093, (2008). In this case a Plaintiff elderly homeowner (79 years old) filed a lawsuit against a BROKER for elder abuse and a host of other legal claims including breach of fiduciary duty. The gravamen of Plaintiff’s complain was that the Broker lied about the amount of cash-out proceeds that would be tendered to Plaintiff at the close of the loan., and lied about the monthly payment amount and undisclosed Yield Spread Premium (YSP), and other non-disclosure of material terms of the loan. There was also an issue of a fraudulent release of legal claims Defendants fraudulently created and Plaintiff was instructed to sign the loan documents without reading them. This financial elder abuse case was also brought in the context of Plaintiff’s house facing foreclosure.

The Defendants argued there was no financial abuse or elder abuse and sought to dismiss Plaintiff’s claims. The Court failed to dismiss such claims and discussed the claim of Elder Abuse by stating: “Zimmer has a claim for financial elder abuse pursuant to Welfare and Institutions Code Section 15657 et seq. against Golden State (the Broker) because Golden State defrauded Zimmer out of the equity in her house while she was over 65 years old. She is entitled to actual and punitive damages and attorney fees.”

 In regard to the Elder Abuse cause of action, the Court also stated: “Financial elder abuse is defined in subsection 15610.30(a), which provides: “Financial abuse” of an elder or dependent adult occurs when a person or entity does any of the following: (1) takes, secretes, appropriates or retains real or personal property of an elder or dependent adult to a wrongful use or with intent to defraud or both. (2) Assists in taking, secreting, appropriating or retaining real or personal property of an elder or dependent adult to a wrongful use or with intent to defraud or both.

The court went on to hold that under Cal. Welf. & Inst. Code Section 15610.30(a)(1)-(2), “a person or entity is deemed to have taken, secreted, appropriated or retained property for a wrongful use, if among other things, the the person or entity takes, secretes, appropriates, or retains possession of property in bad faith. Id Section 15610.30(b). A person or entity is deemed to have acted in bad faith if the person or entity knew or should have known that the elder had the right to have the property transferred or made readily available to the elder or to his representative. Id Section 15610.30(b)(1). Lastly, a persona should have known of such right “if, on the basis of the information received by the person or entity or the person or entity’s authorized third party, or both, it is obvious to a reasonable person that the elder has such a right. The Court determined that the Broker’s obtaining of fees (personal property) in the amount of $10,700 was wrongfully obtained under these circumstances indicating false statements and misrepresentations.

The Court in Zimmer also addressed the issue of breach of fiduciary duty. To this issue the court stated: “A mortgage broker breaches his fiduciary duty to borrower under California law if he provides materially misleading and incomplete information regarding the terms of the loan, even if correct terms are in the loan documents and borrower does not read documents.” In addition the Court stated, “when brokering loans for borrower of modest means and limited experience in financial affairs, mortgage broker has a duty of oral disclosure of material loan terms and counseling, which require him to disclose orally the true rate of interest, penalty for late payments, and other material terms of the loan. The court found the elderly homeowner/borrower to be of limited means and lacking financial savvy in financial matters. The court pointed to the elderly homeowner’s “14 years of education.”

The court went on to state that: “Under California law, a mortgage loan broker acts in a fiduciary capacity that “not only imposes on him the duty of acting in the highest good faith toward his principal, but precludes the agent from obtaining any advantage over the principal. The duty obligates brokers to make a full and accurate disclosure of the terms of a loan to borrowers and always act in utmost good faith toward their principles.”

Finally, the Zimmer court addressed “enhanced remedies” under California’s elder abuse statute. “To utilize the Elder Abuse Act’s enhanced remedies, a plaintiff must prove by clear and convincing evidence that the defendant has been guilty of recklessness, oppression, fraud, or malice in the commission of the abuse. Id Section 15610.30(b)(2). A preponderance of the evidence standard governs a Plaintiff’s ability to recover “all other remedies otherwise provided by law.”

NOTE: Although Zimmer held that a loan broker (as opposed to a lender), who owed the borrower a fiduciary duty, was liable for elder financial abuse, such cause of action may also extend to a “financial institution” or lender who may or may not owe a fiduciary duty as discussed in the Toscano case below.

UNREPORTED DECISIONS

Note: There are a fair amount of unreported decisions I found dealing with financial elder abuse. To me, it means the Courts may be willing to help out a senior, and yet for various reasons, the court may not want the case reported.

(1) Darone Case (2001 WL 34144398). In this case the Court set forth the requirements to prove a prima facie case for financial elder abuse. Specifically, the Court held:

“Here, then, in order to state a claim of actionable financial abuse…..Plaintiff must allege: (a) that she is an “elder”, (b) that Defendant “took, secreted, appropriated her “money or property”, © that Defendant did so “to a wrongful use or intent to defraud, or both” and (d) that in doing so, Defendant was guilty of “recklessness, oppression, fraud or malice.” The Court held in Darone that there was no fiduciary duty required to state a claim for elder abuse despite defendants contentions.

•2.      Toscano v. Ameriquest Mortgage Company (non-reported in F.Supp 2d, 2007 WL 3125023 (E.D. Cal), (2007). In this case, a lender (as opposed to a loan broker) sought to dismiss financial elder abuse claims levied against him. The lender argued they owed no fiduciary duty to the borrower-homeowner, and therefore could not be liable for elder financial abuse. In Toscano, Plaintiff was a 65 year man who spoke only english. Although the loan was negotiated in Spanish, the loan documents were written in English. Defendant advised Plaintiff that the loan at issue (a loan at or below 6.3% interest) was the best loan for Plaintiff. The documents Plaintiff signed had loan terms of 7%. The Court held that a fiduciary relationship was not required to state a claim for financial elder abuse under California law. The Cout also went on to set forth a fiduciary duty test that would create a duty of care, even to lenders and financial institutions (as opposed to brokers) and set forth the test as follows:

“In California, the test for determining whether a financial institution owes a duty of care to the borrower-client involves the balancing of carious factors, among which are: (1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to him, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendants conduct and the injury suffered, (5) the moral blame attached to the defendants conduct, and (6) the policy or preventing future harm.” The Court stated “A FIDUCIARY RELATIONSHIO CAN ARISE WHERE THE LENDER BECOMES HEAVILY ENTANGLED WITH THE BORROWER.”

Although this case is not citeable, it does given reason to believe that the Courts may so hold this way in any future case, allowing a borrower to bring a claim of financial elder abuse against both a broker and the lender. The Lender could be seen as “assisting” financial elder abuse in these types of cases. More problematic is the case of the “holder in due course” lender who will claim no liability whatsoever for acts of elder abuse that may have been committed at the loan origination stage. See below for more on holder in due course defense.

 LEGAL ARGUMENTS SEEKING TO ENJOIN FORECLOSURE OF LOANS ORIGINATED AS THE PRODUCT OF ELDER ABUSE

•1.      A LENDER OR LOAN SERVICER SHOULD NOT BE PERMITTED TO FORECLOSE ON A PREDATORY ELDER ABUSE LOAN (THE FRUITS OF THE POISOINOUS TREE) WHERE THE RESULT IS TO LEAVE AN ELDERLY PERSON WITHOUT SAFE AND AFFORDABLE HOUSING SOLUTIONS.

It is common knowledge that many loan servicers may prefer foreclosing on homes, rather than modifying loans, due to financial incentives often provided for in various pooling and servicing agreements. These loan servicers likely enjoyed making money off the servicing of these loans that are the product of elder abuse, as well as other predatory loans such as pay option ARM loans (Pick-a-pay negative amortization loans).

This is a strong public policy argument to be made that a Court should step in and exercise its equitable powers to prevent a foreclosure where an elderly California homeowners is about to be foreclosed upon and kicked out of their homes and thrust into an uncertain future.

As discussed below, California Business and Professions Code Section 17203 grants Courts the express authority “as may be necessary to restore to any person in interest, any money or property, real or personal, which may have been acquired by means of such unfair competition.”

Where a violation of the California Elder abuse statutes can be shown, this violation can serve as an underlying violation sufficient for California Business and Professions Code Section 17200 purposes (17200 prohibits acts of unfair competition such as violations of other statutes), and the Court should restore the loan proceeds and loan payments back to Plaintiff – similar to a TILA rescission claim and/or return any foreclosure property back to the homeowner. These are just an example of the types of arguments that could and should be made to the judge.

The other option, of allowing the elderly victim to be “kicked to the curb” should not be permitted even where a subsequent lender claims it is a “holder in due course.” The subsequent lenders “create the marketplace” for these types of loans, and “enjoy the fruits of the poisonous tree.” But for their secondary market purchases of these types of predatory loans, the original lenders (who would be forced to hold their own garbage loans) would not abuse California elderly homeowners who would have direct recourse against them.

•2.      THE COURTS SHOULD PROTECT CALIFORNIA ELDERLY HOMEONWERS WHO WERE STEERED INTO COMPLEX AND NON-TRADITIONAL FINANCIAL PRODUCTS AND SHOULD DEMAND THAT THE LENDER OR LOAN SERVICER SHOW GOOD CAUSE BEFORE PURSUING A JUDICIAL FORECLOSURE SALE OR AN UNLAWFUL DETAINER ACTION (FOLLOWING A FORECLOSURE SALE THAT WAS NOT STOPPED).

As referenced in this memorandum, the State of California protects elderly citizens (those over 65) from fraudulent, oppressive, wrongful and harmful acts that threaten to cause irreparable harm. In the Case of Hernandez v. Stabach, 145 Cal.App.3d 309, 193 Cal. Rptr. 350 (1983), the Court granted a preliminary injunction preventing Defendant (a Landlord accused of retaliatory eviction – an “unfair” and “illegal” act under California Business and Professions Code Section 17200) from filing an unlawful detainer action to evict the non-rent paying tenant until such time as the Defendant Landlord appeared in the Superior Court and obtained leave of Court, (by showing good cause for the eviction) which would permit such unlawful detainer action to be filed. In Stabach, the Court held:

“The challenged portion of the preliminary injunction does not enjoin defendant from initiating unlawful detainer actions against any Plaintiff for nonpayment of rent……or deny him access to the courts. Rather, it requires only that he obtain leave of Superior Court to institute such actions in the municipal court. The injunction does not prohibit the institution of unlawful detainer actions if a showing of good cause is made.”

The Court went on to state:
“California Business and Professions Code Section 17203 provides: Any person performing or proposing to perform an act of unfair competition within this state may be enjoined in any court of competent jurisdiction. THE COURT MAY MAKE SUCH ORDERS OR JUDGEMENTS, INCLUDING THE APPOINTMENT OF A RECEIVER, AS MAY BE NECESSARY to prevent the use or employment by any person of any practice which constitutes unfair competition, as defined in this chapter, or as may be necessary to restore to any person in interest, any money or property, real or personal, which may have been acquired by means of such unfair competition.”

The Court finalized its opinion by stating:
“We conclude that it was within the court’s inherent equity power and the power conferred upon it by Business and Professions Code Section 17203 to enjoin defendant from evicting or attempting to evict any plaintiff without first obtaining permission from the court. By requiring defendant to seek leave of court, the trial court sought to MONITOR AND PREVENT DEFENDANT’S RETALIATORY ATTEMPTS TO EVICT TENANTS THAT ASSERT THEIR RIGHTS.”

The Stabach case suggests the courts have the express and inherent power to assist victims of elder financial abuse in the State of California. The question remains, will, and to what extent are the Courts willing to go to in order to protect past victims of financial elder abuse in the context of mortgage loans (hidden fees, bait and witch tactics, fraud in the factum, nondisclosure of material loan terms, false and fraudulent trumping of income, steering clients into the wrong financial product etc.)? In each of these scenarios the broker and lender (and subsequent investor of the loan on the secondary market) each enjoy handsome profits, fees and enjoy the fruits of loan origination at the elder homeowners expense and at time, to the loss of their property.

POTENTIAL PITFALLS TO ASSERTING A PREDATORY LENDING CLAIM, IN THE FORM OF AN ELDER ABUSE VIOLATION, IN THE CONTEXT OF A FORECLOSURE DEFENSE CASE

•1.      Holder in Due Course: Where a company purchases a loan on the secondary market (i.e. they were not the originator of the loan, they will often claim they are a “holder in due course” and cannot be held liable for fraud, deception, elder abuse, etc. at the origination stage of the loan. This is a good argument in most cases. If a party can successfully assert holder in due course status, there are limited claims a party can make against them. We have addressed the issue of holder in due course status in other blog posts. Just google “vondran holder in due course” and you should be able to find it. Just know this is a potential defense in every predatory lending case, including elder abuse cases. The trick is to show the secondary lender is not a holder in due course and not entitled to HDC protection against liability.

•2.      Federal Preemption: As if matters weren’t bad enough, and the chips stacked in favor of the powerful lenders and their mighty lobbiest in D.C., there is another doctrine of law that seeks to aid lenders in battling predatory lending claims like elder abuse. In many cases, the lenders or loan servicers who are named as defendants in lawsuits will claim the Plaintiff-homeowners claims are pre-empted by Federal law. One of these laws is HOLA. Again, we have another article that addresses this issue. Google “vondran pre-emption predatory lending.” Again, for purposes of this article, be aware that there are defenses that will be raised to every predatory lending claim you seek to raise. That is the battle folks.

                                                                    CONCLUSION

Elders over 65 are one of the fastest growing segments of our society. People are living longer. That being said, many seniors grew up on 30 year fixed mortgages and are now being enticed with exotic and toxic loan products such as negative amortization loans, reverse mortgages, interest-only products, and adjustable rate mortgage products. Seniors can be particularly vulnerable when dealing with greedy and financially savvy loan brokers and lenders who seek profits over fiduciary duty and a sense of fair play. Someone has to protect seniors who are victimized in the predatory loan process. It is simply unfair to treat seniors in California like every other borrower. Seniors often survive on a fixed income, and if they are forced to the streets by Courts and Financial institutions that could care less about their well-being we can truly admit we are devolving as a society. The California elder abuse law should be used to prevent foreclosure where brokers, lenders, servicers, and other financial institutions don’t play by the rules and abuse seniors who deserve protection. The Courts must take a case-by-case approach and enjoin wrongful foreclosure and return property to the Senior where elder abuse is affirmatively shown to have been perpetrated.

 ELDER ABUSE LINKS

 National Center on Elder Abuse: www.ncca.aoa.gov

 National Clearinghouse on Abuse Later in Life: www.ncall.com

 Senior Care Attorney: www.SeniorCareAttorneys.com

 National Academy of Elder Law Attorneys: www.naela.org

 OptionArmLawyer: www.OptionArmLawyer.com

 RescindMyLoan: www.RescindMyLoan.net

  OTHER FORECLOSURE DEFENSE AND BANKRUPTCY LINKS

 Foreclosure Defense Show: www.LoanModRadio.com

 BK Attorney Steve: www.BKAttorneyS.net

 Foreclosure Defense Resource Center: www.ForeclosureDefenseResourceCenter.com

 Trial Plan Fraud: www.TrialPlanFraud.com

 Vondran Law: www.VondranLaw.com and www.Vondranlegal.com

 Vondran Blogs: http://activerain.com/attorneysteve

 Foreclosure Defense Radio Show (Loan Modification Radio) www.LoanModRadio.com

 LOOKING FOR A LAWYER TO TAKE YOUR CASE ON A CONTINGENCY FEE BASIS?  WE TAKE WORLD SAVINGS AND WACHOVIA LOANS ON CONTINGENCY.  TO FIND A LAWYER WHO MAY TAKE A CASE ON CONTINGENCY FEE BASIS IN YOUR AREA SEARCH THE DATABASE AT WWW.CONTINGENCYCASE.COM.

By Steve Vondran, Esq. who is practicing Real Estate, Bankruptcy, and Foreclosure Defense in Arizona and California where he is licensed to practice law.  He also holds a real estate broker’s license in both states as well.  Prior to becoming an attorney, Mr. Vondran also was a mortgage loan officer which has given him insight into the current financial crises.  He can be reached at steve@vondranlaw.com or (877) 276-5084.  The following is general legal information only, and is not to be construed as legal advice, or a substitute for legal advice.  The following information may not be updated or accurate, and is simply provided as general information and things to think about if you are facing foreclosure in California or Arizona.  For specific questions, please contact a foreclosure defense attorney on your area.  Please do not post confidential information on my blogs and do not send us confidential information in emails as we cannot guarantee the confidentiality of such.  No attorney-client relationship is formed until a retainer agreement is signed.

One of the key things we must figure out as foreclosure defense lawyers is whether or not your loan was “sold-off on the secondary market” and/or “securitized” and sold to investors on wall street (ex. hedge funds, pension funds, foreign investors, insurance companies, etc.).

Common Scenario: Your sub-prime ARM was originated by Countrywide.  Countrywide then sells the loan to Wells Fargo and Wells Fargo works either holds the note, and/or sells it off to an investment banker to securitize the loan.  Countrywide, as loan originator, knowing it was going to sell off your loan, may not have cared much about any predatory lending issues such as:

(1) Ability to afford the payment after the loan adjusts (ex. option ARM loans / pick-a-pay); See our website discussing Option ARMS / Pick-a-Pay Loans atwww.OptionArmLawyer.com

(2) Inflated appraisals that helped get the loan funded;

(3) Lack of full, fair, and conspicuous disclosures as required under RESPA, Truth in Lending law (TILA), required ARM disclosures (Ex. CHARMS booklet), and Credit score / FICO disclosures;

(4) Failure to provide two completed copies of a notice of right to cancel to each borrower with the dates for recsission accurate and filled in (note failure to provide proper copies of this critical disclosure document can create an EXTENDED THREE YEAR RIGHT TO RESCIND YOUR LOAN (you can learn more about loan rescission at www.RescindMyLoan.net);

(5) Stated income that may be false, trumped up, and/or not properly verified when the circumstances suggest it would be prudent to verify;

(6) Excessive (and perhaps hidden) fees, including yield spread premiums (YSP);

(7) Failure to provide contracts in the foreign language of the borrower (California Civil Code Section 1632)

(8)   Reverse Redlining / Discriminatory Lending

(9)  Steering borrowers into sub-prime loans (ex. 2/28 or 3/27 ARM loans).

(10)  Violations of HOEPA

And the list goes on – check your facts with your lawyer.

Countrywide, and other “originating lenders” may not have cared much about the consequences of the loan they underwrote (i.e. whether or not the toxic and predatory loan would be affordable after the interest rate adjusted, and whether or not the loan would land you foreclosure in next few years) mainly because the originating lenders, in many cases, were committed to selling the loan literally before you signed the loan documents.  They knew they were going to be paid by a third party to buy the loan, and either hold it for an investment, or securitize it sell it off on wall street.

Again, these originating “lenders” in many cases were not even “lending” their own money, and may have funded the loan out of a credit line provided by a third party, such as an investment bank.  Whatever the case, loans were originated by the droves, and sold off and securitized loans, while the originating “lender” was simply “cashed-out” by being paid the balance of the loan plus a fee.

This creates the potential for an originating lender to care more about volume,  than quality of loans.   IN many cases, investment bankers set the standards for the types of loans they would purchase, and the originating lender literally mass-produced loans that would wind up securitized in loan pools and sold to Wall Street investors.

Once your loan is sold off, the third party buying the loan will claim they took the note in good faith with no notice of claims and defenses, and therefore, under the eyes of the law, they should be deemed a HOLDER IN DUE COURSE (which in most cases, immunizes the purchasing lender from facing a whole host of claims and defenses a borrower may want to raise, including predatory lending claims – the claims and defenses a holder in due course must answer to are discussed below).

The end result then, is that the originating, as we have seen, can merely file for bankruptcy if the ‘heat gets too hot in the kitchen’ (i.e. if they are the subject of potentially expensive class action lawsuits challenging their predatory loans).

What this creates is a situation where the originating lender manufactures and creates the “garbage in” loans (loans that are destined for a loan pool) and the purchasing lender who buys the loan from the originating lender winds up securitizing these loans into loan pools, having them rated, and eventually pitching this “garbage out” to Wall Street Investors who are lead to believe these loan pools represent sound investments in Americas strength in the housing market.

Meanwhile, the borrower, the victim of predatory lending, has literally nowhere to turn to seek redress for loan non-compliance and predatory lending (at least that is the lenders and loan servicer’s position).  The broker and/or originating lender may be bankrupt, and the Trustee of the Loan Trust, Loan Servicer, and Wall Street Investors all claim they have no liability because they had nothing to do with the original predatory lending issues.  This is the situation many people face when trying to get a loan modification.   Although forensic audits are being done, many homeowners will run up against the “holder in due course” issue.

The loan servicer is, in many cases, servicing the loan on behalf of the Wall Street Investor (note that the loan is likely in a Special Purpose Vehicle (SPV) with a bunch of other notes, and the Trustee of a Trust, in most cases, is speaking on behalf of the Investors.  The Investors do not want any part of coming forward and claiming ownership of the notes, and they do not want to get involved in the foreclosure process.  They want their income stream, and NOT to fight predatory lending lawsuits that they know (at least they NOW know) are predatory in many cases.

As many of you realize, the loan servicer is often the entity you must contact to seek a loan modification.  The loan servicer too, claims no liability or responsibility for any predatory lending that may have occurred during the origination of the loan.  They will claim “we are just servicing the loan on behalf of the investor.”

Again, in securitized loans, the investor is the Wall Street Investor who is seeking a portion of the income stream from the loan pool of which your loan is a part of.  Of course they didn’t tell you about this loan pool when your loan was originated, or that your note would comprise part of the loan pool.   All you knew is that the loan “might” be sold off to a third party.

So the question becomes, when seeking a loan modification, and following a loan audit, which parties, if any, can be held liable for predatory lending detected at the loan origination stage?

Again, the lender who purchased your loan will usually assert that they have no liability, as will the investment banker (who in many cases set the guidelines for the loans to be purchased and often gave credit lines to originating sub-prime lenders), nor will the Wall Street Investor or Loan Servicer.  Simply put, everyone will point fingers at the originating lender and will claim you have no lawsuit to leverage against them as they are “holders in due course” and not liable for any other parties mortgage lending loan violations.

What then do we try to accomplish as Foreclosure Attorneys trying to halt foreclosure of your property?

(1)      We review your loan file and look for predatory lending violations against the broker and/or originating lender. The broker (assuming you used one in the transaction) owed you a fiduciary duty that requires, among other things, that they fairly disclose material loan terms to you and to look out for your best interest (instead of theirs) and basically put you into the best loan for you given your financial condition.  The lender, who “backs” the broker, at least in our opinion, has a duty to properly underwrite your loan to ensure that you will be able to pay it back.  To us, a lender arguably “aids and abets” the broker by providing products designed to fail (ex. the option arm loan), and by allowing other predatory lending practices listed above to be perpetrated against a borrower.  Note however, that Courts have generally held that a lender, as opposed to broker, owes you NO FIDUCIARY DUTY in a loan transaction.

(2)      We ascertain to whom the loan may have been  sold-off to and ascertain whether or not the loan was securitized, as many loans were over the last several years.  If the loan was sold off (as many were), we realize we will be dealing with a “holder in due course” argument that the lender will maintain, but normally won’t discuss during the loan modification stage.  At this point, we must determine what claims, if any, can be made against the loan assignee.

The best claim is where the originating lender never sold off the loan, and rather, services its own loan in its portfolio (called a “portfolio loan”).  In these cases, the originating lender is responsible for its own garbage and cannot point fingers at other entities, such as a loan broker.  You should note, that this is the precise reason why loans get sold off in the first place (why not transfer the loan, and the liability to someone else and get “cashed out” for your efforts).

Another type of claim that we think may have some viability is the situation where, for example, Countrywide originates the loan (ex. option arm loan), then sells off the loan on the secondary market, yet RETAINS the right to Service the Loan. In these cases, it is our opinion that Countrywide continues to “enjoy the fruits” of what may be a predatory loan (ex. the option ARM loan – aka “pick-a-pay”).  In these circumstances, should Countrywide be deemed a holder in due course (HDC) and be permitted to avoid liability by claiming it is no longer the owner of the loan and that they are just a loan servicer for the new investor of the loan?  We do not see that as a fair outcome.

Another good scenario for applying the findings in a forensic loan audit, is the situation where you can make some type of connection between the secondary market and the predatory lender and/or where you have Truth in Lending (TILA) or HOEPA material violations that allow you to make some type of Claim against the loan assignee, whether a major lending institution or trustee claiming ownership of a loan under a trust.  Potential causes of action such as civil conspiracy, joint venture liability, aiding and abetting tort violations, and TILA and HOEPA are discussed below.

NOTE: One way to find out whether or not your loan was sold off and securitized on the secondary market is to use some free online search tools.  Here are some tools for you to look up your property to see if Freddie or Fannie (Government Sponsored Enterprises – Quasi Private Companies) own your loan:

Does Freddie Mac own your loan?

https://ww3.freddiemac.com/corporate/

Does Fannie Mae own your loan?

http://loanlookup.fanniemae.com/loanlookup/

Freddie and Fannie typically securitized conventional loans, and they claim to be the holder / owner of the certain loans they securitize.  You can also try to call your lender and just ask them: “do you own the loan or are you just servicing it on behalf of an investor” (sometimes they will tell you, and sometimes, strangely enough, they will keep the owner of your loan a SECRET if you can believe that).

You may also want to send in a Qualified Written Request under RESPA and/or a request under 15 U.S.C. 1641(f) to demand that the loan servicer produce the name, address, and telephone number of the holder of the loan or master loan servicer.  They are required to tell you this under Federal Law (that being said, do not be surprised if they blow you off – this is the response we get in many cases, again, if you can believe it).  Why is that?  Because they do not want you to know who owns your loan, in some cases, because they cannot “produce the note” and prove they have the right to collect loan payments and/or foreclosure on your property.   In some cases they would prefer to simply keep you ignorant.

You can also send out “debt validation letters” following the lender / loan servicer / collection companies attempts to collect a debt (i.e. calling you to discuss your past-due mortgage payments).

(3)  We send out legal demand letters highlighting the best case possible for liability against the lender and/or loan servicer and/or trustee of a trust acting on behalf of Wall Street Investors.  This may be to assert a TILA rescission claim and discussing a potential tender strategy, to outlining a HOEPA violation triggering rescission, or arguing for “aiding and abetting” liability, etc.  Again, keep in mind, if there is not some type of connection to the originating lender (ex. the original lender sold off the loan and is now profiting from it by acting as loan servicer) it may be tough to raise a strong legal claim against the loan assignee or trustee of a trust, aside from TILA extended rescission rights or other grounds for rescission or the filing of an injunction.

NOTE:  Some possible grounds for filing for an injunction (which may get the attention of a loan servicer acting on behalf of the investors) that can result from a loan audit are:

(1)       TILA right of rescission (for “material” TILA violations)

(2)       HOEPA (hi cost loan) violations

(3)       Failure to follow Arizona or California foreclosure laws (ex. 2923.5 declarations in CA)

(4)       Wrongful Foreclosure (ex. failure to clarify amounts owed pursuant to a Qualified Written Request which disputes such; or where the breach was already cured through a loan modification agreement (see our website at www.TrialPlanFraud.com for more information on Trial Plan scams and bad faith dealing we are seeing in conjunction with loan modifications)

(5)       Unconscionable Loans that should not be enforced (ex. predatory option arm pick-a-pay monthly adjustable loans)

(6)       Fraud in the origination of the loan which can be tied to the lender (especially a portfolio loan)

(7)       Violations of California Civil Code Section 1632 – Foreign language contracts)

(8)       Other equitable grounds for enjoining your foreclosure sale (contact a foreclosure defense attorney to discuss).

These are just a few sample grounds that can be reviewed, and raised where applicable to seek an injunction.  In other cases, the aggrieved borrower may be have nothing more than a claim against the originating broker/lender who may now be defunct following a BK during the mortgage meltdown.

Note: Some borrower’s want to assert fraud against “the whole system” (broker, originating lender, investment banker that securitizes loan, trustee of the trust, loan servicer, etc.).  This approach should be thought through to make sure you actually have good-faith claims to assert against each party.  A frivolous “sue everybody” approach is not without consequence.

(4) In addition to trying to “audit” (look-for) for predatory lending and foreclosure violations, we also try to “create” legal violations (that’s right, if the loan servicer cannot comply with simple legal requirements they too can become potential defendants).  To do this we send out qualified written requests; demands to validate debts; and demands to identify the holder of the loan.

While we would concede that in many cases the loan servicers had nothing to do with the origination of the loan and the predatory lending practices that may have occurred, however, there are legal rights that California and Arizona homeowners facing foreclosure have, that the loan servicers (who can also be predatory themselves) must comply with upon making proper requests.  Two of the main things they are required to do are:

(a) They must respond to Qualified Written Requests.  They are fairly good at this in our opinion, but their responses are often late, or often lacking in detail.  They must acknowledge the QWR within 20 days, and address any valid issues within 60 days.  They must also cease reporting negative credit during this period.  Failure to comply creates legal violations against the loan servicer, and,

(b) They must identify the holder of the loan or master loan servicer (name, address, and phone number) as set forth above.  Note that they rarely comply with this request.  Given that many loans were securitized and managed by a “trustee of the trust” they will rarely provide you any meaningful information in this regard.  Again, they seem to prefer to keep this a secret.

(c) There are some other items that arguably must do including following foreclosure laws, rules, and regulations when they are working with other parties seeking to foreclose on behalf of the “investor” of the loan.  For example, they may be required to give (or may voluntarily give) declarations in the Notice of Default (ex. the California Civil Code Section 2923.5 declaration that certifies that the “beneficiary” of the loan, or their “authorized” agent – for example, the loan servicer claiming to be the authorized agent of the beneficiary –  has contacted the borrower to assess their financial situation, and discussed loan modification options).  In securitized loans, this may raise issues involving who the true beneficiary is.  If you do not know who the true and real beneficiary is (ex. the true lender who is entitled to loan payments) then how can you ascertain who the “authorized agent of the beneficiary” is?  And if you do not know the answer to that questions, how can you confirm there was any compliance with 2923.5?  If there is no compliance with 2923.5 (or it least if the loan servicer, trustee, and lender cannot prove who the true owner of the loan is) then why should the foreclosure be allowed to proceed where compliance with California Foreclosure laws cannot be proved where challenged?  We discuss more about this issue at our www.ProduceTheNoteAttorney.com website.

The bottom line is, that despite the fact that your loan was sold off, and potentially securitized, and despite the fact that the lenders, loan, servicers, and/or trustees will claim they are “holders in due course” we nevertheless attempt to identify, assert, and stand up for our clients legal rights.  This is not to say there are absolute rights to stop foreclosure in every case.  Some loans may be simply too old, or may be non-predatory in nature, that finding and asserting legal leverage may be tough.  Not all loans are predatory.  But the point is to approach every foreclosure defense case as setting up a case for potential litigation.

Too many times people come to us after hiring loan modification companies, or even other attorneys who did nothing more than submit tax returns and pay stubs (i.e. they did nothing or very little to investigate whether a legal case can be made to stop foreclosure, if necessary, and to present their findings to a loan servicer).  While the servicer may not care much about potential litigation (again, they see themselves as innocent parties to the transaction and to securitization in general) nevertheless we believe it makes sense to approach these cases as if preparing for a lawsuit, for no other reason than that it may actually be required.

We have seen people squander their TILA rescission rights because they thought they had hired a loan modification company or loan modification law firm to assist them.  However, not protecting your TILA rescission rights (of course you have to find these rights first) especially where you had a legal right to rescind against the loan assignee, and where you had an ability to “tender” as required under TILA, is truly a shame to see, and in my opinion creates malpractice liability exposure for the attorney who did nothing but send in a hardship letter and patted himself on the back for helping a homeowner in distress.  Both the real estate broker posing as a loan modification company, and the “foreclosure defense law firm” both assume legal liability for not investigating and protecting a homeowners TILA, and/or other rescission rights.  If for no other reason, that is justification for having your loan file audited, especially where you have equity, or near-equity in the property or some other means to tender following rescission.  For more information about tender and rescission see our website at www.RescindMyLoan.net

At any rate, this list goes on.  The point is, as Foreclosure Defense Attorneys, we are looking to see if there is any way to leverage a loan modification (or at times a short sale) against the subsequent purchasers of the loan, and/or the loan servicers and final investors of the loan (which may be largely insulated from lawsuits under the holder in due course doctrine discussed below).

HOLDER IN DUE COURSE OVERVIEW

Generally speaking, a holder in due course (in the mortgage loan context) is a subsequent purchaser of a loan (ex. Wells Fargo who buys a loan from Countrywide or Fannie / Freddie who buys a loan from a direct lender) and who buys in good faith, without knowledge of any claims, defenses, or defects in the underlying instrument.  This is merely a general statement of the law.

BENEFITS OF BEING A HOLDER IN DUE COURSE: In general terms, a holder in due course will only be liable for the “REAL” defenses of a potential plaintiff (ex. infancy, duress, lack of capacity, illegality of transaction, fraud in the inducement where no opportunity to discover essential contract terms was permitted).   A holder in due course is generally NOT liable for any “PERSONAL” defenses (such as undue influence, less than total competence, fraud and misrepresentation that does not prevent discovery of material contract terms, etc.).

Obviously, this creates a powerful incentive to obtain holder in due course status under the holder in due course doctrine (HDC) as there are less legal claims that can be made against you.

GENERAL REQUIREMENTS TO OBTAIN HOLDER IN DUE COURSE STATUS FOR MORTGAGE LOANS:

Generally speaking, under U.C.C. 3-302 a holder in due course is a:

(1) “Holder” of an “instrument;”

(2) Who has no apparent evidence of forgery or alteration of the instrument;

(3) Who otherwise has no notice of any other irregularity that may call into question the authenticity of the instrument;

(4) Which Holder took the instrument for value (paid consideration);

(5) And in good faith (honesty in fact and in observation of commercially reasonable standards of good faith and fair dealing);

(6)  Who took without notice that the instrument may be overdue or that it has been dishonored, or that there is an uncured default with respect to payment of another instrument in the same series;

(7)  And which holder took the instrument without notice of any claims under UCC 3-305(a) (“real defense”) or 3-306

(8)  And which holder took the instrument without notice that the instrument contains unauthorized signatures or has been altered.

Note: the “notice” requirement seems to be more of an “objective standard” in that the Courts may look to whether or not the holder of the instrument “should have realized” any of the above items which would preclude HDC status.

Also note: Article 3 of the UCC underwent a re-writing in 1990.  It should come as little surprise that the drafting process was largely dominated by the banks, clearinghouses, and federal reserve board.

So, this section indicates that if a subsequent purchaser of a loan pays value for the loan, and takes it in good faith with no notice of claims or defects listed above, generally speaking then they may be considered a holder in due course subject to the limited claims and defenses of the potential plaintiff (i.e. an aggrieved homeowner) as stated above.

NOTE:  The key then is to either defeat the subsequent parties claim of HDC status, and if that cannot be done, find some other type of claim that may make them liable even though they fancy themselves as holders in due course.

If the facts of a case allows you to claim that either: (1) there is no holder, (2) there is no instrument, (3) there was no good faith, (4) there was no value paid for the loan, and/or (5) there were other noticeable claims and/or defects that should have been detected, etc., then you may be able to argue the subsequent purchaser of the loan deserves no HDC status.  These are some things to look into.

NOTE: We will be updating this section with caselaw in this area as time permits.  I did not have time to add to this section.

WHAT LEGAL CLAIMS, IF ANY, CAN BE MADE AGAINST A “HOLDER IN DUE COURSE?”

Now, even where the loan is owned by a subsequent lender, and/or Wall Street investors – who invest in mortgage backed securities (and where these loans are being serviced by a designated loan servicer, who may or may not be a major lender themselves) and the holder in due course issue arises, there still MAY be some claims that you MAY be able to assert against these loan assignees.

Here are a few arguments that can be looked into when trying to see if there is any way to threaten a lawsuit against the loan assignee  / innocent investor / trustee under a trust / loan servicer, etc where a reasonable and meaningful loan modification is not provided to the borrower.

Please keep in mind, these can be TOUGH theories to prevail on, but homeowners should at least consider some of these theories if the lender is literally forcing foreclosure on the homeowner, and where a predatory loan is present - (typically, the option ARM loan which most people agree is predatory, including the lenders themselves who are entering into various settlement agreements with state Attorney Generals, all but conceding the predatory nature of these types of loans and the 2/28 and 3/27 Sub-prime ARMS which may also be predatory, but  possibly in more limited circumstances).

Here are the theories we will be looking at in very general terms: (1) Civil Conspiracy, (2) Joint Venture Liability, (3) Aiding and abetting tort violations, (4) TILA and HOEPA rescission rights.  These claims, where applicable, can be raised against loan assignees, and should be presented to the loan servicer when attempting to leverage a loan modification.

(1) Civil Conspiracy

The following highlight some general principles in the State of California that highlight the elements required to show a civil conspiracy.

In the context of securitized loans, the question would be whether or not a borrower of an alleged predatory loan (ex. an option arm loan that was not fully explained, disclosed, or that has harsh, oppressive, and confusing and conflicting terms) can sue more than just the original broker and lender, but rather, can he sue the broker, lender, loan servicer, trustee of the trust, etc., by arguing they are involved in a system or process designed to defraud California borrowers or in disregard of whether or not the borrower would wind up in foreclosure given the underwriting and other predatory practices involved in the loan origination process.

A general review of the California case law highlights what might be legally required to assert a civil conspiracy claim against the players in the “structured predatory financing” system created by the major financial institutions (my comments are set forth in italics), the requirements are taken from actual cases involving civil conspiracy claims in California.

(1) Civil Conspiracy is not cause of action, but legal doctrine that imposes liability on persons who, although not actually committing tort themselves, share with immediate tort-feasors common plan or design in its perpetration.  (One could argue that the common plan or design is to originate predatory loans that have high costs and fees, and which are likely to result in foreclosure, and to securitize these loans in a manner in which everyone would profit).

(2) Elements of action for civil conspiracy are formation and operation of conspiracy and damage resulting to plaintiff from act or acts done in furtherance of common design; the major significance of civil conspiracy lies in fact that it renders each participant in wrongful act responsible as joint tort (whether or not he was a direct actor and regardless of degree of activity).  Formation of a conspiracy normally requires some type of agreement as set forth below.  The damage would be the resulting foreclosure that is a foreseeable consequence of some types of option arm loans.

(3) Actual knowledge of planned tort, without more, is insufficient to serve as basis for conspiracy claim as the knowledge must be combined with intent to aid in tort’s commission.Again, this seems to require some type of intent to aid the other parties.  This may be a bit difficult to prove.  For example, does a loan servicer have the intent to aid the original lender in originating an option arm loan?

(4) To prove claim for civil conspiracy, plaintiff must show: (1) formation and operation of conspiracy; (2) wrongful conduct in furtherance of conspiracy; and (3) damages arising from wrongful conduct. This is a general recitation of the rule.

(5) A civil conspiracy to commit tortious acts can only be formed by parties who are already under a statutory or common law duty to plaintiff, the breach of which will support a cause of action against them individually, rather than as conspirators.  Stated another way, where plaintiff alleges existence of civil conspiracy he must allege allege the preexisting legal duty and its breach.

(7) Because civil conspiracy is so easy to allege, plaintiffs have a weighty burden to prove it.  To prove the claim, Plaintiff’s must show that each member of conspiracy acted in concert and came to a mutual understanding to accomplish a common and unlawful plan, and that one or more of them committed an overt act to further it. Again, the cases indicate that Plaintiff must PROVE the mutual understanding……this may not be so easy to do, and must prove that each acted in concert to put Plaintiff into a predatory loan that was designed to result in foreclosure.

(8) There is no separate tort of civil conspiracy, but rather, conspirators must agree to do some act which is classified as “civil wrong. In the context of setting up a system to securitize loans, the “wrongful act” may be argued as setting up the chain of financing whereby the original broker and lender gets cashed out for their participation in essentially creating the security, while the other parties (the investment banker, loan aggregator and trustee) get immediately cashed out by the wall street investors who invest in the loan pools, and the servicer collects its fees for any and all loans that it gets to service. Note: If proper underwriting guidelines were followed, it would seem there would be a WHOLE LOT LESS LOANS TO SERVICE (meaning, less profits to the servicers).  Again, proving the common plan and scheme may be the hurdle.

(9) Mere knowledge, acquiescence, or approval of an act, without cooperation or agreement to cooperate is insufficient to establish liability based on conspiracy.

NOTE: This is not an exhaustive analysis of the cases, and may be missing some recent cases involving securitized financing.  These are just some general ideas to think about when determining whether there are proper grounds to assert against the parties to a securitized loan.

(2) Joint Venture liability

A joint venture is basically an agreement between two or more persons (which includes corporations) who agree to work together toward a common plan in the pursuit of profits.  There must be an agreement to work together.  The joint venture agreement may be oral or informal.  Whether a joint venture agreement is created is a question of fact depending upon the intention of the parties.

The essential element of a joint venture is an undertaking by two or more persons to carry out a single business enterprise jointly for profit. The rights and liabilities of joint adventurers, as between themselves, are governed by the same rules which apply to partnerships. See Pellegrini v. Weiss, 165 Cal.App.4th 515, (2008).

In Smith v. Wells Fargo, 401 F.Supp.2d 549, (2005), a Plaintiff was challenging the actions of a loan originator.  Countrywide and Wells Fargo claimed they were “holders in due course” and thus, could not be liable for the actions of the  loan originator or its agents.  The Court disagreed, and denied Defendant’s motion for summary judgment (Defendant’s claimed Plaintiffs could not prove that there was a joint venture agreement).    In denying Defendants motion for Summary judgment on the joint venture issues, the Court held:

“As between the parties, a contract, written or verbal, is essential to create the relation of joint adventurers……..to constitute a joint adventure the parties must combine their property, money, efforts, skill, or knowledge, in some common undertaking of a special or particular nature, but the contributions of the respective parties need not be equal or of the same character. There must, however, be some contribution by each party of something promotive of the enterprise…….an agreement, express or implied, for the sharing of profits is generally considered essential to the creation of a joint adventure, and it has been held that, at common law, in order to constitute a joint adventure, there must be an agreement to share in both the profits and the losses. It has also been held, however, that the sharing of losses is not essential, or at least that there need not be a specific agreement to share the losses, and that, if the nature of the undertaking is such that no losses, other than those of time and labor in carrying out the enterprise, are likely to occur, an agreement to divide the profits may suffice to make it a joint adventure, even in the absence of a provision to share the losses.”

In applying this, the Court held:

“In the case sub judice, after reviewing the PSA, it appears that there was an agreement to pool and service (PSA) mortgages between Delta Funding Corporation, as seller; Countrywide, as servicer; and Norwest Bank Minnesota, National Association or Wells Fargo, as trustee. It also appears that Delta Funding provided the mortgage loans, Countrywide provided servicing the loans and Wells Fargo provided the financing or money. Finally, it appears from sections 2.04(b), 2.05, 3.08, 7.01 and 9.05 of the PSA that there was an agreement on the fees each party could collect as well as their liability for losses.

Moreover, in section 4 of the expert report by Kevin P. Byers, Mr. Byers notes that Delta Funding’s revenues result primarily from “the sale of mortgage loans (through securitization and on a whole loan basis and sale of its servicing right on newly originated or purchased pools of home-equity loans.”)…..(quoting Delta Funding’s 10-K annual report to the Security and Exchange Commission).) Therefore, taking the evidence in the light most favorable to the plaintiff, it would not be unreasonable for a jury to conclude that Delta Funding, Countrywide and Wells Fargo entered into a joint venture. As there is a genuine issue of material fact, the Court denies summary judgment.”

Potential Argument for Joint Venture Liability in the Securitization of Loans:

The pooling and servicing agreement(used when loans are securitized) is an express written agreement that basically sets the stage for the participants in loan securitization to realize a profit:

(1) The Servicer is appointed to collect loan payments and receive a profit from the collection of such from the borrower.  The Servicer therefore commits its time, talent, resources, and services in an attempt to profit from the securitized loan;

(2) The Trustee agrees to perform certain duties to manage and administer payment streams for the benefit of the investors of the securitized loan;

(3) MERS may be appointed to receive a fee to track ownership and servicing rights (which may be transferred at the Trustees discretion);

(4) The seller of the security and investment banker / underwriter cannot profit “but for” the pooling and servicing agreement.  In essence, it could be argued they are third party beneficiaries under this agreement;

(5) As part of the agreement, some originating lenders may agree to “buy-back” non-performing loans, keeping them on the hook under the terms of the contract (sharing in the profits and losses of the joint venture).

Obviously this is just one example, you would want to review the pooling and servicing agreement and SEC filings to see what the exact set-up is in your situation.

(3) Aiding and Abetting Liability – Creating the Marketplace for Predatory Option Arm loans.

Under the common law of many states, it is against the law to aid and abet another in the commission of a tort (ex. fraud / misrepresentation are two types of torts).  For example, where you have a broker that broker’s a loan through a “direct lender” and the direct lender is “pricing out” the loan and reviewing the guidelines of the “purchasing lender” (i.e. the loan assignee who will claim they are a holder in due course) the question arises who is liable, for example, for making false statements of fact to induce a borrower to enter into an option arm loan?

It would seem appropriate that the broker (who took the loan application and made false statements of fact – in breach of their fiduciary duty to the borrower – should be held liable.  But what about the “direct lender” who is funding the loan only to turn around and sell it to the “purchasing lender”?  Did the direct lender aid and abet the broker by not verifying certain disclosures are made?  Do they aid and abet by underwriting the predatory loan product (usually these option arm loans are underwritten to wind up in foreclosure – the borrower can afford the “teaser rate” but not the payment that would result after the loan hits is principal balance cap and recasts into a fully amortized loan at the note rate?

Did the direct lender “aid and abet” the broker?  It would seem an argument could be made since the direct lender knows, or should know the details of the loan, and was in a good position to ensure proper underwriting and to ensure proper disclosures (ex. a CHARMS adjustable rate disclosure and other truth in lending disclosures are clear, conspicuous and accurate).

Taking it to the next level, even assuming you can create a case for liability against a direct lender (using our scenario above) can you then extend liability to the entity that purchases the loan from the direct lender (i.e. a private investor, private bank, investment banker, fannie mae or freddie mac, etc.?).  Can you impart this level of knowledge and wrongdoing against these parties that are even more remote in the chain of things?

These are the tough questions.  Again, it seems even these “purchasing lenders” are complicit, and have knowledge about the types of loans they are purchasing (in this case the option arm loan) and know, or should know that these loans are predatory, toxic, and likely to wind up in foreclosure.

In a recent predatory lending lawsuit, in the case of Plascencia v. Lending 1st Mortgage, the Defendant, EMC, claimed it could not be held liable under California’s Unfair Competition Law, (2008 WL 4544357 (583 F.Supp.2d 1090, N.D. Cal. Sept. 30, 2008)), since it was not the party that originated the loan in question (EMC purchased, and securitized loans from Lending 1st Mortgage that often had truth in lending violations).

The Plaintiff sought to hold EMC liable since they were “engaged in the business of promoting, marketing, distributing, selling, servicing, owning, or are and were the assignees of the Option ARM loans that are the subject of this Complaint.”  They argued EMC was engaged in a “fraudulent scheme” with Lending 1st.

The court denied Defendant EMC’s motion to dismiss on this ground holding that essentially it was possible that Defendant could be held liable for aiding and abetting.  Specifically, the Court stated:

“By showing that EMC purchased Lending 1st’s Option ARM loans with knowledge of Lending 1st’s TILA violations, Plaintiffs may be able to establish that EMC gave Lending 1st a financial incentive to continue to commit those violations, and therefore may be subjected to liability for aiding and abetting violations of the UCL. Moreover,      EMC’s profiting from loans featuring oppressive terms that were not fully disclosed in compliance      with TILA could itself be an unfair business practice under the UCL. EMC may    therefore be liable for UCL violations in its own right. Accordingly, the UCL claim will not be dismissed.”

NOTE: This case may be limited to cases where the borrower was unaware they had a negative amortization option arm loan and/or where Plaintiff can prove that the Purchasing lender has knowledge of TILA defects in the loans they are purchasing.  This is a good case that talks about fraud and the Unfair Competition Law in regard to Mortgage Loans and creates some “hope” for lender liability.

NOTE 2: The Plascencia Case also discussed / cited another case, the In re First Alliance Mortgage Co. case which citation can be found at 471 F.3d, 977, 994-995 (9th Cir.2006).  In this case, a California Federal Court imposed aiding and abetting liability on Lehman Brothers for predatory loans made by First Alliance which targeted senior citizens with false and misleading loans representations.  Lehman purchased the predatory loans and securitized them – while First Alliance remained as the loan servicer earning additional profits off what were found to be predatory and fraudulent loans. Again, the case indicated that Lehman had knowledge of Alliance’s lending practices and even provided a warehouse line of credit so that First Alliance could continue to originate these types of loans.  Again, which indicates some level of knowledge of the predatory loan origination practices may have to be shown as a pre-requisite to filing suit.

This case is important because companies like Countrywide often originated predatory option arm loans (or “backed” brokers who pitched these loans) and often sold them off on the secondary market, and retained the servicing rights.  We have been saying that in these cases, Countywide (now BofA) should not be able to claim they are an innocent party, or that they have some type of “holder in due course status” when they are continuing to profit from their dirty laundry.

A separate question to consider is whether a Plaintiff can attack what may appear to be a truly innocent “loan servicer” (without proof of predatory knowledge), with aiding and abetting liability where a loan servicer refuses to modify a loan that was a product of fraud at the loan origination stage.  It seems that some level of knowledge of the predatory loan origination may be required (although some would argue all loan servicers are implicit as to the true nature and quality of loans securitized and pooled into trusts).  Where a loan servicer is appointed / hired to collect loan payments on behalf of a trustee of a trust, it is not clear whether or not a predatory knowledge can be established, but should be investigated in each case.

NOTE 3: Another case that may help in analyzing and aiding and abetting liability claim against a loan purchaser / loan assignee who may have securitized your loan or a loan servicer with knowledge of predatory loan origination is Schulz v. Neovi Data Corp., 152 Cal.App.4th 86 (2007).  This is the case where an online payment processing company allowed an illegal online lottery site accept payments for its business.  The Plaintiff made a claim under the California Business and Professions Code Section 17200 (California’s unfair competition law) and argued that the payment processing company had  “aided and abetted” the illegal lottery site.  The Court held:

Liability may be imposed on one who aids and abets the commission of an intentional tort if the person knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act……..this is consistent with Restatement Second of Torts Section 876, which recognizes a cause of action for aiding and abetting in a civil action when the wrongdoer knows that the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself.

The rationale is that advice or encouragement to act operates as a moral support to a tortfeasor and if the act encouraged is known to be tortious it has the same effect upon the liability of the adviser as participation or physical assistance.

Under this theory, at least for California loans, it appears a borrower may be able to sue a purchasing lender of a predatory loan who securitizes and profits off the loan, and potentially a loan servicer who profits off a predatory loan (even though the Schulz case does not involve the holder in due course argument) where it appears the lender or servicer has knowledge that the originator of the loan was committing a tort by breaching a legal duty (ex. making fraudulent representations to induce a borrower into entering into an option arm loan) AND, where the lender or loan servicer gives substantial aid, assistance, and/or encouragement.

Under this theory, it would seem you would need to prove two tough things, (1) knowledge of the tortious breach of duty by the loan originator, and (2) active participation in encouraging the predatory practice.  This may be an easier case to make against a purchasing lender who is looking to securitize loans, than it is a loan servicer seeking to profit off its servicing of virtually any loan (the servicer does not care what the loan is, they will service any loan).

At any rate, the facts of the case should be looked at to determine which, if any, parties may be proper parties to file a lawsuit against.  Remember, filing false and frivolous claims can result in sanctions and other unfavorable responses by the Court.  There needs to be good faith grounds to file a lawsuit against any party.

(4) HOEPA (high cost loans) and TILA Extended Right of Rescission Claims apply to assignees of loans even those claiming Holder in Due Course Status.

Note: MATERIAL TRUTH IN LENDING VIOLATIONS THAT CREATE AN EXTENDED THREE YEAR RIGHT TO RESCIND APPLY TO ALL LOAN ASSIGNEES EVEN TO ANY PARTY DEEMED A HOLDER IN DUE COURSE.  THAT IS WHY A TILA LOAN AUDIT IS SO POWERFUL BECAUSE IF YOU HAVE AN ABILITY TO “TENDER” THIS CLAIM WILL SURVIVE EVEN TO A HOLDER IN DUE COURSE.

More about these types of rescission claims can be found at our website www.RescindMyLoan.net

CONCLUSION

Although the financial giants have created an elaborate system of securitizing loans – which arguably encouraged, facilitated, and assisted the originating lender to loosen up the underwriting standards and create as many loans as possible that were designed to be bought up, securitized,  and ultimately sold-off to wall street investors – they also helped draft the UCC Holder in Due Course rules which they seek to hide behind whenever they are sued.

Although it can be difficult to make credible claims against a loan assignee, trustee of a trust, loan servicer or other entity that was intended to profit off securitized loans, there are some claims and defenses that should be explored.

Foreclosure defense is a difficult line of business because often times loan payments are not being made by the borrower, and at times the loan servicer may even offer some type of a loan modification that can be used to show good faith in a Court of Law in the event a lawsuit is filed.  In addition, judges are literally inundated with foreclosure defense lawsuits, and where a judge is paying his or her mortgage, they may not look favorably on others who don’t pay their mortgage, and it is possible that only the worst of the worst predatory lending practices will ever see the light of a jury.  Of course, judges are bound to follow the law, and it is our job as foreclosure defense lawyers to try to make a persuasive case for predatory lending, injunctions, damages, assignee liability, and rescission rights.

Sure the deck is stacked against you, but why take foreclosure lying down?  If you are denied a loan modification, and believe you may be the victim of predatory lending, have your case reviewed to see if you have any proper grounds to challenge the assertion of HDC status, or to lay claim against the parties to loan securitization for aiding and abetting legal violations and engaging in civil conspiracy’s and joint ventures that seek profit at the expense of legal compliance and at the expense of the homeowner.

Where you have valid good-faith legal claims that you can assert material TILA violations raising extended rescission rights against ANY loan assignee (ex. civil conspiracy, joint venture liability, aiding and abetting, TILA rescission rights, HOEPA recsission rights, etc.), this might be the best time to raise the “produce the note” defense and make them prove that: (a) they have the legal right to foreclosure on you (i.e. that their is some entity/beneficiary holding the note that has a legal right to foreclosure on your property) and that (b) this beneficiary,     or their authorized agent, has complied with all required aspects of foreclosure law in California)?

If the “wrong lender” or “pretender lender” (as this term is used by Neil Garfield) forecloses on you, how can you be certain the “real lender” (i.e. the entity/beneficiary that may be holding your original promissory note and all properly recorded assignments) won’t come knocking on your door  – wherever that door may be – and calling its loan due.

Should a homeowner / mortgagor be required to risk “financial double jeopardy” where it is not clear who owns your loan given the nature of securitized loans and given the tendency of loan servicers to keep this fact a secret?

Again, no one is saying this is an easy battle.   These are just some things to think about and issues to explore when your house is on the line.  This article is not to imply success on any of the theories outlined above.  For specific legal questions, please contact a foreclosure defense attorney in your area.  We are only licensed to practice law in the states of California and Arizona, and only seek to solicit clients in these states.  This is an advertisement and communication pursuant to state  bar rules.

__________________________________________________________________________________________________________________________

To see some of other other websites dealing with the financial crisis please review the following websites:

(1) www.OptionArmLawyer.com (potential attacks against the predatory option arm loan – aka “Pick-a-Prey”)

(2) www.TrialPlanFraud.com (tackling issues involved with what we call trial-plan shennanigans)

(3) www.BKAttorneyS.net (BK Attorney Steve – Chapter 7 Bankruptcy information for Arizona and California Homeowners)

(4) www.RescindMyLoan.net (website that discusses Truth in Lending Rescission information)

(5) www.LoanModRadio.com (site which features foreclosure defense issues in streaming audio)

(6) www.ProduceTheNoteAttorney.com (general information on the “Produce the Note” foreclosure defense strategy that is running rampant on the Internet)

www.LoanModSolutions.net (Submit your Wachovia / World Savings Loans)

www.LoanModificationRipoff.net (Submit your Loan Mod Scam – we may be able to take your case on contingency).

Our profiles will also be listed on www.ContingencyCase.com an online legal directory for lawyers who will consider taking cases on a contingency fee basis in a variety of legal areas.  I will be listed for our World Savings and Wachovia Option Arm loans.

__________________________________________________________________________________________________________________

Offices:

Arizona Office (Esplanade): 2415 E. Camelback Road, Suite 700, Phoenix, AZ, 85020.

California Office (Fashion Island): 620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660

_____________________________________________________________________________

Our Real Estate Law Services:

1. Loan Modifications / Loan Workouts (World Savings and Wachovia Loans)

2. Commercial Lease Modifications

3. DRE audits, hearings and investigations

4. Real Estate Broker admissions cases

5. Foreclosure Defense

6. Mortgage Law & Predatory Law

7. Phoenix Real Estate Zoning Attorney – Greater Phoenix (Scottsdale, Goodyear, Buckeye, Casa Grande etc.)

8. Phoenix Eminent Domain Attorney / Inverse Condemnation / Prop 207 (Greater Phoenix)

9. Real Estate Arbitration, Litigation and Mediation

10. Foreclosure Consultant Contracts / Loan Modification Contracts

11. Real Estate LLC’s & Incorporations

12. Real Estate Partnership Law

13. Quiet Title Actions

14. Forensic Loan Audits – Greater Phoenix (Truth in Lending (TILA), RESPA, HOEPA, Fraud, etc.)

__________________________________________________________________________________________________________________

KEYWORDS: ARIZONA FORECLOSURE DEFENSE / CALIFORNIA FORECLOSURE DEFENSE / SUING ON A OPTION ARM LOAN / PREDATORY LENDING LAWSUIT / INJUNCTION AGAINST FORECLOSURE / STOPPING A FORECLOSURE SALE / FORENSIC LOAN AUDIT / PHOENIX FORECLOSURE LAWYER / PHOENIX FORECLOSURE ATTORNEY / ORANGE COUNTY FORECLOSURE ATTORNEY / ORANGE COUNTY FORECLOSURE LAWYER.

___________________________________________________________________________________________________________________

Because most of our foreclosure defense work is done by phone fax and email between we are able to serve our California clients in the following California Counties and Cities

Alameda
Albany
Berkeley
Dublin
Emeryville
Fremont
Hayward
Livermore
Newark
Oakland
Piedmont
Pleasanton
San Leandro
Union City
Amador
Amador City
Ione
Jackson
Plymouth
Sutter Creek
Chico
Gridley
Oroville
Paradise
Angels Camp
Colusa
Colusa
Williams
Antioch
Brentwood
Clayton
Concord
Danville
El Cerrito
Hercules
Lafayette
Martinez
Moraga
Orinda
Pinole
Pittsburg
Pleasant Hill
Richmond
San Pablo
San Ramon
Walnut Creek
Crescent City
Placerville
South Lake Tahoe
Clovis
Coalinga
Firebaugh
Fowler
Fresno
Huron
Kerman
Kingsburg
Mendota
Orange Cove
Parlier
Reedley
San Joaquin
Sanger
Selma
Orland
Willows
Humboldt
Arcata
Blue Lake
Eureka
Ferndale
Fortuna
Rio Dell
Trinidad
Imperial
Brawley
Calexico
Calipatria
El Centro
Holtville
Westmorland
Inyo
Bishop
Kern
Arvin
Bakersfield
California City
Delano
Kern County
Maricopa
McFarland
Ridgecrest
Shafter
Taft
Tehachapi
Wasco
Avenal
Corcoran
Hanford
Lemoore
Lake
Clearlake
Lakeport
Susanville
Los Angeles
Agoura Hills
Alhambra
Arcadia
Artesia
Azusa
Baldwin Park
Bell
Bell Gardens
Bellflower
Beverly Hills
Bradbury
Burbank
CalabasCarson
Cerritos
Claremont
Commerce
Compton
Covina
Cudahy
Culver City
Diamond Bar
Downey
Duarte
El Monte
El Segundo
Gardena
Glendale
Glendora
Hawaiian Gardens
Hawthorne
Hermosa Beach
Hidden Hills
Huntington Park
Industry
Inglewood
Irwindale
La Canada-Flintridge
La Habra Heights
La Mirada
La Puente
La Verne
Lakewood
Lancaster
Lawndale
Lomita
Long Beach
Lynwood
Malibu
Manhattan Beach
Maywood
Monrovia
Montebello
Monterey Park
Norwalk
Palmdale
Palos Verdes Estates
Paramount
Pasadena
Pico Rivera
Pomona
Rancho Palos Verdes
Redondo Beach
Rolling Hills
Rolling Hills Estates
Rosemead
San Dimas
San Fernando
San Gabriel
San Marino
Santa Clarita
Santa Fe Springs
Santa Monica
Sierra Madre
Signal Hill
South El Monte
South Gate
South Pasadena
Temple City
Torrance
Vernon
Walnut
West Covina
West Hollywood
Westlake Village
Whittier
Chowchilla
Madera
Marin
Belvedere
Corte Madera
Fairfax
Larkspur
Mill Valley
Novato
Ross
San Anselmo
San Rafael
Sausalito
Tiburon
Mariposa
Mendocino
Fort Bragg
Point Arena
Ukiah
Willits
Merced
Atwater
Dos Palos
Gustine
Livingston
Los Banos
Merced
Modoc
Alturas
Mono
Mammoth Lakes
Monterey
Carmel
Del Rey Oaks
Gonzales
Greenfield
King City
Marina
Monterey
Pacific Grove
Salinas
Sand City
Seaside
Soledad
Napa
American Canyon
Calistoga
Napa
St. Helena
Yountville
Nevada
Grass Valley
Nevada City
Truckee
Orange
Anaheim
Brea
Buena Park
Costa Mesa
Cypress
Dana Point
Fountain Valley
Fullerton
Garden Grove
Huntington Beach
Irvine
La Habra
La Palma
Laguna Beach
Laguna Hills
Laguna Niguel
Lake Forest
Los Alamitos
Mission Viejo
Newport Beach
Orange
Placentia
San Clemente
San Juan Capistrano
Santa Ana
Seal Beach
Stanton
Tustin
Villa Park
Westminster
Yorba Linda
Placer
Auburn
Colfax
Lincoln
Loomis
Rocklin
Roseville
Plumas
Portola
Riverside
Banning
Beaumont
Blythe
Calimesa
Canyon Lake
Cathedral City
Coachella
Corona
Desert Hot Springs
Hemet
Indian Wells
Indio
La Quinta
Lake Elsinore
Moreno Valley
Murrieta
Norco
Palm Desert
Palm Springs
Perris
Rancho Mirage
Riversi
San Jacinto
Temecula
Folsom
Galt
Isleton
Sacramento
San Benito
Hollister
San Juan Bautista
San Bernardino
Adelanto
Apple Valley
Barstow
Big Bear Lake
Chino
Chino Hills
Colton
Fontana
Grand Terrace
Hesperia
Highland
Loma Linda
Montclair
Needles
Ontario
Rancho Cucamonga
Redlands
Rialto
Twentynine Palms
Upland
Victorville
Yucaipa
Yucca Valley
San Diego
Carlsbad
Chula Vista
Coronado
Del Mar
El Cajon
Encinitas
Escondido
Imperial Beach
La Mesa
Lemon Grove
National City
Oceanside
Poway
San Marcos
Santee
Solana Beach
Vista
San Francisco
San Joaquin
Escalon
Lathrop
Lodi
Manteca
Ripon
Stockton
Tracy
Arroyo Grande
Atascadero
Grover Beach
Morro Bay
Paso Robles
Pismo Beach
San Luis Obispo
San Mateo
Atherton
Belmont
Brisbane
Burlingame
Colma
Daly City
East Palo Alto
Foster City
Half Moon Bay
Hillsborough
Menlo Park
Millbrae
Pacifica
Portola Valley
Redwood City
San Bruno
San Carlos
San Mateo
South San Francisco
Woodside
Santa Barbara
Buellton
Carpinteria
Guadalupe
Lompoc
Santa Barbara
Santa Maria
Solvang
Santa Clara
Campbell
Cupertino
Gilroy
Los Altos
Los Altos Hills
Los Gatos
Milpitas
Monte Sereno
Morgan Hill
Mountain View
Palo Alto
San Jose
Santa Clara
Saratoga
Sunnyvale
Santa Cruz
Capitola
Santa Cruz
Scotts Valley
Watsonville
Shasta
Anderson
Redding
Shasta Lak
Sierra
Loyalton
Siskiyou
Dorris
Dunsmuir
Etna
Fort Jones
Montague
Mount Shasta
Tulelake
Weed
Yreka
Solano
Benicia
Dixon
Fairfield
Rio Vista
Suisun City
Vacaville
Vallejo
Sonoma
Cloverdale
Cotati
Healdsburg
Petaluma
Rohnert Park
Santa Rosa
Sebastopol
Sonoma
Windsor
Stanislaus
Ceres
Hughson
Modesto
Newman
Oakdale
Patterson
Riverbank
Turlock
Waterford
Sutter
Live Oak
Yuba City
Tehama
Corning
Red Bluff
Tehama
Trinity
Tulare
Dinuba
Exeter
Farmersville
Lindsay
Porterville
Tulare
Tulare
Visalia
Woodlake
Tuolumne
Sonora
Ventura
Camarillo
Fillmore
MoorpaOjai
Oxnard
Port Hueneme
Santa Paula
Simi Valley
Thousand Oaks
Ventura
Yolo
Davis
West Sacramento
Winters
Woodland
Yuba
Marysville
Wheatland

Note: Our Foreclosure Defense work is primarily driven by phone, fax and email with you and the lenders.

As a consequence we are able to serve Arizona loan modification clients in the following Arizona cities:

Mesa
Glendale
Chandler
Scottsdale
Gilbert
Tempe
Peoria
Yuma
Surprise
Avondale
Flagstaff
Lake Havasu City
Goodyear
Sierra Vista
Prescott
Oro Valley
Bullhead City
Apache Junction
Prescott Valley
Casa Grande
El Mirage
Marana
Kingman
Buckeye
Fountain Hills
San Luis
Nogales
Florence
Douglas
Queen Creek
Maricopa
Payson
Sahuarita
Paradise Valley
Chino Valley
Eloy
Sedona
Cottonwood
Camp Verde
Show Low
Winslow
Somerton
Safford
Coolidge
Globe
Page
Bisbee
Tolleson
Youngtown
Wickenburg
South Tucson
Guadalupe
Holbrook
Snowflake
Cave Creek
Benson
Thatcher
Litchfield Park
Eagar
Pinetop-Lakeside
Taylor
Colorado City
Dewey-Humboldt
Willcox
St. Johns
Carefree
Clarkdale
Quartzsite
Parker
Superior
Williams
Clifton
Kear
Pima
Springerville
Star Valley
Gila Bend
Wellton
Miami
Huachuca City
Mammoth
Tombstone
Fredonia
Patagoni
Hayden
Dunca
Winkelman
Jerome

___________________________________________________________________________________________________________________

NOTICE:

The foregoing information is general legal information only and shall not be relied upon as legal advice, or a substitution for legal advice.  If you have specific legal questions about your foreclosure case, or loan modification case you should seek out the advice of a real estate attorney.  In addition, the information posted above may not be 100% complete, accurate or up-to-date.  The Law Offices of Steve Vondran is licensed to practice law in the state of Arizona and California and only seeks to solicit and serve Clients in these two states. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona.  He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084. This is an advertisement and communication pursuant to State Bar Rules.  Please do not send us private or confidential information through any of our above-listed websites.   Sending us an email does not create an attorney-client relationship (only signing a legal retainer will do this).