California Bankruptcy Attorney Blog

Nevada Supreme Court Resurrects Unlawful Detainer and Quiet Title Lawsuits - Chapman v. Deutsche Bank

Tue, 18 Jun 2013 09:25:51 -0500

Vincent Howard and our San Bernardino County foreclosure defense attorneys were interested to see a ruling from the Nevada Supreme Court on some of the issues that arise during and after a foreclosure. In Chapman v. Deutsche Bank, the Ninth U.S. Circuit Court of Appeals asked the Nevada Supreme Court to decide whether an action by George and Brenda Chapman to quiet title to their foreclosed home, and an unlawful detainer action by Deutsche Bank, were proceedings in rem, which means they had to do with property rather than personal liabilities, or quasi in rem, meaning they are based on the property rights of a person over whom the court doesn't have jurisdiction. The Nevada Supreme Court ultimately agreed that both cases are in rem or quasi in rem, meaning the quiet title action should not have been dismissed.

Deutsche Bank foreclosed on the Chapmans' Reno-area home and purchased it from itself at auction. When the Chapmans didn't vacate the home, Deutsche Bank filed an unlawful detainer case in state court to evict them. They responded by filing a quiet title action, arguing that the trustee's sale was invalid because Deutsche Bank did not own the note or deed of trust for the house and had not provided proper notice. They moved to consolidate the actions, but Deutsche Bank moved the quiet title case to federal court and then moved to dismiss. The district court denied remand and granted the motion to dismiss. The Chapmans then appealed to the Ninth Circuit, saying the district court should not have dismissed because the prior exclusive jurisdiction doctrine should have required the federal court to abstain in favor of the earlier action. The Ninth Circuit agreed that this is true, but only if the cases were in rem or quasi in rem, and asked the Nevada Supreme Court for a ruling.

The Nevada Supreme Court noted that if both of the actions relate to personal jurisdiction, there is no prior exclusive jurisdiction problem. But two courts may not exercise jurisdiction over the same property at the same time, the court said, because an in rem judgment applies "against the whole world." The court noted that for its purposes, it's irrelevant whether the actions are in rem or quasi in rem, as long as they're not in personam. It then found that quiet title actions are in rem or quasi in rem, because their purpose is to determine who has the better claim to the property. Similarly, the high court found that unlawful detainer is in rem or quasi in rem because it resolves a dispute over possession, which is a kind of property interest. It left the parties' arguments on the prior exclusive jurisdiction doctrine to the Ninth Circuit.

Vincent Howard and our Newport Beach foreclosure defense lawyers are pleased to see that this couple will get another chance to make their case. The Nevada court's ruling does not resolve the underlying dispute over whether the foreclosure was valid, and indeed, that's an argument that requires strong facts to back it up. But the decision will permit the Chapmans to at least air the arguments they have in state court, which may be better equipped for the job given the local nature of real estate disputes. Vincent Howard and our Long Beach foreclosure defense attorneys prefer that homeowners with credible allegations of lender misconduct--and from what we know about the housing bubble, many such allegations are credible--get their days in court.

Eighth Circuit Reverses Summary Judgment for Junk Fax Defendant in TCPA Case - Nack v. Walburg

Mon, 17 Jun 2013 08:40:07 -0500

Last week, Vincent Howard and our Rubidoux consumer protection lawyers wrote about the Telephone Consumer Protection Act. It's a federal law that creates liability for telemarketers and junk fax senders who don't strictly comply with certain requirements, and allows offended consumers to sue for statutory and actual damages. In Nack v. Walburg, the Eighth U.S. Circuit Court of Appeals ruled that its provisions apply even when the violation is only the failure to include federally required language. Michael Nack sued in St. Louis federal court after he got a fax advertisement from Douglas Walburg. Nack doesn't deny that his agent consented to receive the fax, but argues that Walburg should be held liable for failure to include opt-out language required by federal regulations. The district court granted summary judgment to Walburg, but the Eighth reversed.

Neither party went into detail about the facts of the case, except that they agree that Nack's agent agreed to receive Walburg's fax. After receiving it, Nack filed this putative class action, arguing that Walburg violated a federal regulation by failing to include language allowing the recipient to opt out. The TCPA prohibits unsolicited advertisements via fax, unless they contain a conspicuous notice permitting recipients to opt out of future ads at no further cost. As amended by the Junk Fax Prevention Act, the TCPA permits offended parties to sue based on a violation of the law or its implementing regulations, for an injunction and actual or statutory damages. The most relevant regulation extends the opt-out requirement to solicited faxes. Nonetheless, the district court held that it didn't apply to solicited faxes, based on the limits in the statute itself and contradictory FCC statements.

When the case was appealed, the Eighth Circuit solicited an amicus brief from the FCC itself, which said the opt-out language is also required from solicited faxes because permission may be revoked. Based on this, Walburg argued on appeal that the regulation is improperly broader than the statute. The Eighth Circuit appeared sympathetic to Walburg, noting that he faced a large amount of liability for doing something he had permission to do. Nonetheless, it deferred to the FCC's interpretation of the statute and its regulation, saying it must do so unless the interpretation is contrary to the statute's plain language or arbitrary or capricious. And the court found it was prevented from considering these exceptions, both of which amounted to challenging the regulation itself, by a federal law requiring challenges to go through the agency first. Rejecting a First Amendment challenge as waived because it was not brought up earlier, the Eighth reversed and remanded, suggesting that the proceedings might be stayed for an administrative decision.

Though the appeals court was sympathetic to the defendant, Vincent Howard and our Garden Grove consumer protection attorneys believe it made the right choice by upholding the regulation. Anyone who has received email "spam" or mailed credit card solicitations knows that it takes very little to get onto an advertiser's mailing list. Once you're there, it can take repeated requests to get off the list, if the advertiser listens at all. Requiring the opt-out language in all fax advertisements is thus a sensible way to protect recipients without imposing unduly on the sender. Vincent Howard and our Claremont consumer protection lawyers hope the FCC continues to hold to this interpretation in any future administrative action.

Oregon Supreme Court Rules MERS Transfer System Is Valid, But It Cannot Foreclose - Niday v. GMAC and Brandrup v. ReconTrust

Fri, 14 Jun 2013 17:53:36 -0500

Vincent Howard and our Moreno Valley foreclosure defense attorneys were interested to see that the Oregon Supreme Court has made two rulings with vitally important implications for foreclosures in its state. In Niday v. GMAC and Brandrup v. ReconTrust, the high court was asked to determine whether Oregon law permits MERS to be a beneficiary of a deed of trust. MERS is a private company formed by major lenders to allow them to swap mortgages as commodities among themselves; they do this by naming MERS as the beneficiary of a trust deed. Thus, this case challenged a cornerstone of the way MERS does business. It also challenged the custom of not recording transfers in ownership with county land offices, the purpose of MERS. The high court's ruling ultimately handed most of the victory to MERS, allowing it to perform non-judicial foreclosures on a showing of authority from the lender, and allowing some ownership transfers to take place within MERS.

The Brandrup case involved four consolidated appeals that came from federal district court. In all four cases, the homeowners challenged their non-judicial foreclosures, saying transfers in the ownership of their notes were not recorded with the county as required by Oregon law. The federal district judge in these cases certified four questions to the Oregon Supreme Court, asking whether MERS may be a beneficiary under Oregon law, or may be designated as a beneficiary without a property interest; whether the note is automatically assigned and must be recorded when the lender transfers it to a successor in interest; and whether MERS may legally retain and transfer title to a deed of trust after a note is transferred.

In the other case, Rebecca Niday sued to stop a foreclosure, alleging that MERS and other involved financial companies didn't have any legal interest in the deed that would allow a non-judicial foreclosure. The trial court granted summary judgment to defendants, but the Oregon Court of Appeals made headlines by reversing, finding that Oregon law requires all changes in ownership to be recorded before a non-judicial foreclosure can start. Because MERS is not a beneficiary or the owner of the interest in the note, the appeals court reversed dismissal of the case. The decision converted all new non-judicial foreclosures in Oregon to judicial ones, which are longer and more expensive for the lender. It also set off speculation that foreclosure defense lawyers like us might try to invalidate completed foreclosures.

The Oregon Supreme Court put the issue largely to rest by ruling that MERS may not start a non-judicial foreclosure on its own behalf--though it may foreclose as an agent for the beneficiary of the deed of trust. It reasoned that under Oregon's non-judicial foreclosure law, the beneficiary permitted to foreclose is the original lender or that lender's successor in interest. Nor is MERS eligible to serve as beneficiary of the deed of trust, the court said, because Oregon law says this is the person to whom the obligation (payment) securing the trust deed is owed. The beneficiary is the lender, and the typical MERS contract language provides that MERS has only legal title to the property. However, the court found that Oregon law does not require recording of trust deed assignments resulting from transfers of ownership of the note--which means all transfers within MERS are valid. It further ruled that MERS can serve as agent for the lender and its successors, as long as it can show that all parties agreed to this.

Applying this reasoning to Niday, the high court reversed the court of appeals ruling finding that assignments must be recorded with the county whenever ownership transfers. Only a transfer involving a written assignment triggers the recording requirement, the court said. However, because MERS may not be the beneficiary under Oregon law, the Supreme Court found a genuine issue of material fact as to whether the entity that started the foreclosure had the right to do so, given its appointment by non-beneficiary MERS. Thus, it sent the case back to trial court.

Vincent Howard and our Westminster foreclosure defense lawyers believe this is a partial victory for Oregon homeowners as well as for MERS. Though it continues the potentially anti-consumer practice of transferring mortgages between lenders without permission, accountability or otherwise required taxes, it also makes it clear that MERS may not start Oregon non-judicial foreclosures on its own behalf. This could theoretically invalidate some past foreclosures. It also focuses some welcome scrutiny on chains of assignments, which got broken or twisted during the foreclosure bubble and are sometimes the basis for specious foreclosures. Vincent Howard and our Ontario foreclosure defense attorneys welcome this kind of scrutiny to the chain of assignments here in California as well.

Ohio Supreme Court Reverses Approval of Second Foreclosure After Bank Dismisses First - Countrywide Home Loans Servicing v. Nichpor

Thu, 13 Jun 2013 08:07:31 -0500

Vincent Howard and our Ontario foreclosure defense lawyers were interested to see an unusual foreclosure decision out of Ohio. In Countrywide Home Loans Servicing v. Nichpor, Countrywide filed a foreclosure complaint in Ohio state court, but then dismissed it voluntarily after the property sold at a sheriff's sale. Countrywide then filed another foreclosure complaint, leading Michael and Joanne Nichpor to oppose the new foreclosure on res judicata grounds--that is, they claimed the issue had already been decided. The trial court granted the order of foreclosure and the Ohio appeals court affirmed, saying plaintiffs may end a foreclosure case without prejudice any time before an order is entered confirming a sheriff's sale. The Ohio Supreme Court disagreed, finding that voluntary dismissal is not possible after a court enters judgment on the underlying note.

Countrywide started the foreclosure against the Nichpors in February of 2009 and was granted a judgment in May. That judgment included language saying "there is no just reason for delay." The home was sold at auction on July 1 and purchased by third party Jennifer Reichert. On July 12, Countrywide filed a notice of voluntary dismissal of the foreclosure, which was granted. Countrywide later re-filed the foreclosure complaint. The opinion doesn't discuss whether the issue was litigated in trial court, but the foreclosure was ultimately granted again. Appellants appealed this decision to the Sixth District Court of Appeal in Ohio, which affirmed the decision to grant another foreclosure, but certified a conflict with another state appeals court on whether a foreclosure can be voluntarily dismissed after judgment of foreclosure but before confirmation of a foreclosure sale.

The Ohio Supreme Court first noted that Ohio's rule for when a case may be dismissed refers to the start of trial--but no trial was held in this or many other foreclosure cases. Caselaw says that in the case of a default judgment like this, an order of default judgment means trial has started and that the matter has proceeded to a final judgment. A default judgment is a final (and appealable) order, the court said, even in the context of a foreclosure. Thus, the high court concluded that a case can't be dismissed after a default judgment. To do otherwise, as the Sixth District did, the court said, would lead to an undesirable situation in which lenders would be free to dismiss foreclosures every time they got less money than they have liked at a foreclosure sale. They could then re-file the foreclosure for "a second bite at the apple," which the high court found would contradict the general policy in favor of finality in judicial sales. For those reasons, it reversed and remanded the case.

This opinion is too short to include information about how the rights of the Nichpors and Reichert will be affected by this decision. But Vincent Howard and our Costa Mesa foreclosure defense attorneys agree strongly with the Ohio court--which ruled unanimously--that it's unwise to permit foreclosing banks or loan servicers to manipulate the judicial system by dismissing cases whenever they don't like the result they got. This doesn't just implicate the rights of purchasers like Reichert. Borrowers who are trying to hold on to their homes have also been subjected to this behavior, such as the series of Florida cases involving voluntary dismissal of foreclosures with fatal legal flaws. Vincent Howard and our Corona foreclosure defense lawyers don't believe borrowers get this kind of second chance (or sometimes even a first chance), and oppose stacking the deck against them further.

Ninth Circuit Reinstates Partial Discharge of Law School Loans in Bankruptcy - Hedlund v. The Educational Resources Institute

Tue, 11 Jun 2013 09:34:32 -0500

We've written recently about a rash of cases in which appeals courts have reversed lower courts' findings that student loans should not be discharged in bankruptcy. The standard for this is high; ever since the 2005 changes to the bankruptcy laws, student loans of any type can only be discharged on a showing of "undue hardship," a difficult standard that can also be vague. As a result, there's no chance to discharge student loans for most bankruptcy filers, keeping them in debt perpetually despite the troublesome job market for recent graduates. Vincent Howard and our San Bernardino personal bankruptcy attorneys are especially aware of this problem as to recent law school graduates, who often have six figures of debt when they leave school but face a tough job market. That's why we were interested to see Hedlund v. The Educational Resources Institute, a decision of the Ninth Circuit.

Michael Hedlund took out Stafford loans to get an undergraduate business degree from the University of Oregon and a law degree from Williamette Law School. Unfortunately, he never passed the bar exam, and subsequently took a job that paid $10 an hour. After he ran out of hardship forbearances, he requested loan consolidation; a call to check on the status of that request revealed that his application was never received and he was no longer eligible because he was in default. He concluded that he wasn't eligible for an income-based repayment plan, but still couldn't make his payments. One loan holder, PHEAA, offered him repayment plans he couldn't afford and refused his offer of plans he could afford. He did pay $954 out of an inheritance, and his wages were garnished starting in 2002.

In 2003, Hedlund filed for bankruptcy and started an adversary proceeding seeking partial discharge. He settled with one loan holder and proceeded to trial against PHEAA, whose settlement offer required monthly payments of $307. The bankruptcy court ultimately discharged all but $30,000 of the PHEAA debt. However, the case was appealed up to the Ninth Circuit and ultimately sent back to the bankruptcy court, where it had to be reassigned because the original judge had died. The new judge discharged all but $32,080 of the loans. On appeal, the district court reversed, finding the bankruptcy court erred in its analysis of whether Hedlund had made good-faith attempts to repay his loans.

The Ninth Circuit reversed. Only good faith was at issue in this decision. Good faith is measured by efforts to get a job, minimize expenses and negotiate a payment plan. The district court had ruled that Hedlund didn't adequately minimize his expenses or attempt to negotiate a payment plan, faulting his wife for not working and him for rejecting the PHEAA's settlement offers and not exploring the income-based repayment plan. The Ninth first agreed with Hedlund that the district court should have reviewed for clear error, and then agreed with the bankruptcy court's analysis of the good faith test. Mrs. Hedlund's underemployment is not a factor in her husband's bad faith, the court ruled, and the bankruptcy court's evaluation of their expenses was not clearly erroneous. The evidence of Hedlund's attempts to repay could be interpreted as bad faith, the Ninth said--but again, the bankruptcy court's choice was not clearly erroneous. Thus, it reinstated the partial discharge.

Vincent Howard and our Irvine consumer bankruptcy lawyers are very interested in this case, because it echoes other student loan discharge cases we've seen recently that turned on bad faith. Bankruptcy courts may be friendlier to debtors during the good faith evaluation because they deal every day with other people's financial choices and have been thoroughly exposed to bad choices. District courts' work is more varied. Unfortunately, the current situation with student loans forces people like Hedlund to allow strangers to second-guess their financial choices (and sometimes, those of their spouses). At Howard Law, P.C., our Norco individual bankruptcy attorneys would prefer that Congress repeal the "undue hardship" rule altogether, limiting this scrutiny.

High Court Rules Insurance Must Cover Telephone Consumer Protection Act Judgment - Standard Mutual Insurance Co. v. Lay

Mon, 10 Jun 2013 08:33:35 -0500

Vincent Howard and our Riverside County consumer protection lawyers were interested to see a case applying the Telephone Consumer Protection Act to "spam" faxes. Like other forms of spam, unwanted advertisements sent via fax cost the recipient money and are annoying. They also fall under the TCPA, which bans unsolicited faxes altogether unless there is an existing business relationship between sender and receiver. That was bad news for the real estate agent in Standard Mutual Insurance Co. v. Lay, a decision of the Illinois Supreme Court. One of the recipients of an unsolicited fax from Ted Lay Real Estate Agency successfully sued Lay for TCPA violations, resulting in a settlement for $1.73 million in damages. Lay's insurer sued for a declaration of no coverage and got it at the trial court level, but the Illinois Supreme Court reversed.

In 2006, Lay hired Business to Business Solutions to advertise a commercial property for sale via fax. Unbeknownst to him, B2B did not have permission to send faxes to the recipients, and one recipient, Locklear Electric, filed a class action lawsuit under the TCPA. That case settled for $1,737,500, money to be paid only out of Lay's insurance policy. Ted Lay died during the pendency of this case, but his wife and estate were substituted as defendants. They assigned the right to seek payment from Standard to Locklear, the lead plaintiff. Meanwhile, Standard filed a separate case seeking a declaration that no insurance coverage was required, alleging among other things that TCPA damages are punitive damages not insurable under Illinois law. The circuit court granted summary judgment and the appeals court affirmed.

The Illinois Supreme Court reversed that decision, finding that TCPA damages are not punitive, but remedial. It first rejected an argument by Locklear (standing in Lay's shoes for recovery purposes) that Standard should be estopped from disputing coverage because it didn't adequately inform Lay of conflicts of interests. Locklear had better luck arguing that TCPA damages are insurable in Illinois. The appellate court ruled otherwise, saying the TCPA was penal because the statutory damages are effectively automatic, since actual damages are likely to be small. The Illinois high court disagreed, saying the statute was clearly designed to be remedial and the damages are not purely punitive, but also incentivize private parties to sue. Because the appellate court found this issue dispositive, the high court remanded the case there for consideration of Locklear's other arguments.

Vincent Howard and our Anaheim consumer protection attorneys strongly agree with this logic. Class action lawsuits in general exist because the damages to any one consumer for certain kinds of law-breaking are small. It's only by banding together that consumers can recover enough money to make a lawsuit worth an attorney's time. Liquidated damages under the TCPA and similar statutes (such as the Fair Debt Collection Practices Act) serve a similar goal by creating enough damages to pay an attorney. In a TCPA case, damages are per call or per page of junk fax, which (as this case shows) quickly adds up. Vincent Howard and our Rancho Cucamonga consumer protection lawyers believe this provides a strong incentive for telemarketers to follow the law.

Court Rules Consumers May Sue Over Commonly Used Debt Collector Telephone System - Nelson v. Santander Consumer USA

Fri, 07 Jun 2013 08:34:25 -0500

At Howard Law, P.C., our Riverside debt collection attorneys frequently represent people who have been harassed or deceived by unscrupulous debt collectors. There are laws in place to protect consumers from overreaching by collection agencies, but the agencies break the law fairly often, and consumers have to sue to stop the harassment. Most often, non-bankrupt consumers in California use the Fair Debt Collection Practices Act and the similar Rosenthal FDCPA here in California. But when the collection uses multiple, auto-dialed phone calls, debt collectors may also sue under the federal Telephone Consumer Protection Act. In a Wisconsin case, Nelson v. Santander Consumer USA et al, a federal court recently ruled that the TCPA applies to debt-collection calls originated by a system capable of auto-dialing, even if the calls themselves were not auto-dialed.

The lawsuit was brought by Heather Nelson, the user of a cell phone number called 1,026 times in 13 months by Santander Consumer USA. The phone was in the name of her husband and paid for by him. Santander was attempting to collect a debt on two auto loans refinanced in 2007. To make the calls, it used a system that enables predictive dialing, in which the system times dialing to coincide with the next free time a live person is predicted to have. The system also uses preview dialing, in which live people click on a phone number on a computer screen, and the number is dialed. It is not disputed that Nelson requested in writing that Santander stop calling the number, or that Santander did not stop. In total, it left 119 voice mails on her phone. After one of the vehicles was repossessed, Nelson sued under the TCPA, the FDCPA, the Wisconsin Consumer Act and Wisconsin common law, then moved for summary judgment on the TCPA and Wisconsin Act claims.

The district court surprised the debt collection world by granting summary judgment on the TCPA. In relevant part, the TCPA makes it illegal to call a cell phone without the called party's consent using "any automatic telephone dialing system or an artificial or prerecorded voice." In relevant part, the court ruled that it was irrelevant whether Santander used "a random or sequential number generator" when it called Nelson. The FCC, in its regulations, has included predictive dialers as prohibited by the TCPA. Santander argued that this should be ignored because it's inconsistent with the statute and not expressly authorized by Congress. The district court rejected this as perilously close to frivolous. Finally, the court rejected an argument that Nelson should show which calls to her were made by predictive dialing, saying the law only requires that the system has the capacity for predictive dialing. It then awarded $571,000 in statutory damages.

Vincent Howard and our Santa Ana unfair debt collection lawyers are very pleased by this result. The district court's interpretation is not binding outside this case, but it could guide other courts that will consider the issue. That's one reason debt collection industry websites are now talking about this case--they may be concerned that their current practices are now illegal and vulnerable to lawsuits. From a consumer protection standpoint, this is great news; it gives consumers more ways to fight back when their cell phones are bombarded by obnoxious, illegal automated calls. Vincent Howard and our San Bernardino County illegal debt collection attorneys will be pleased to use this law when appropriate to protect our clients' rights.

Ohio High Court Rules Loan Servicing Not a Consumer Transaction - Anderson v. Barclay's Capital Real Estate

Fri, 31 May 2013 08:58:05 -0500

Vincent Howard and our Upland foreclosure defense attorneys have substantial experience with the troubles borrowers can have with their loan servicers. Because servicers merely collect payments and communicate with borrowers on behalf of the entity that actually owns the loan, they usually do not have any financial stake in the health of the loan or ability to discuss loan securitization. This caused problems a few years ago, when servicers allowed loan modification applications to go unanswered or denied them for spurious reasons, despite the seriousness of the housing crisis. So we were interested to see an Ohio Supreme Court case about whether a loan servicer may be sued for violations of a consumer protection law. In Anderson v. Barclay's Capital Real Estate Ltd., the high court decided that loan servicers wok for financial institutions, not borrowers, and therefore the law did not apply.

The case came to the Ohio Supreme Court via the U.S. District Court for Northern Ohio, which certified questions of Ohio law: 1) Does loan servicing constitute a consumer transaction as defined by the Ohio Consumer Sales Practices Act? And 2) Are residential mortgage loan servicers "suppliers engaged in the business of effecting or soliciting consumer transactions" within that law? The case was brought by Sondra Anderson against Barclays, doing business as HomEq Servicing. She contended that mortgage servicing is a consumer transaction because the servicer routinely provides several services to borrowers, such as accepting payments and working out payment problems. HomEq is paid from part of the money it collects as part of those duties, it buys homeowner's insurance for borrowers, and it holds itself out as having the authority to make loan workout decisions.

After an analysis, however, the Ohio Supreme Court found that loan servicers like HomEq are not involved in a consumer transaction and do not effect consumer transactions within the meaning of the consumer protection law. In the servicing of a mortgage, the high court found, the interactions with consumers are done pursuant to a contact between the servicer and the financial institution that owns the mortgage and note. There is no contract between the borrower and servicer, and there is no transfer of a service to consumers. Instead, the high court found, mortgage servicing is a "collateral service" solely associated with the sale of real estate and necessary to effect a pure real estate transaction. Ohio has amended the law several times to include other parts of mortgage transactions, the court noted, but not loan servicing. For similar reasons, the court found loan servicers were not a supplier in the business of consumer transactions.

A long dissent in this case argued that the law should apply to loan servicers because their services give them substantial power over consumers, but are not part of the original real estate transaction; and because servicers have no special exemption from the law. Vincent Howard and our Costa Mesa foreclosure defense lawyers strongly agree. Under this decision, loan servicers in Ohio have no accountability to consumers under the CSPA, no matter how badly they behave. The dissent notes that Anderson alleges HomEq failed to apply her payments in the way required by her mortgage, a legal contract; did not forward payments to her lender; and failed to provide accurate information when she asked for it. This echoes some of the horrifying problems we saw with loan servicers during the housing crisis, when borrowers were routinely ignored, lied to or given the runaround by loan servicers. Vincent Howard and our Moreno Valley foreclosure defense attorneys believe Californians, Ohioans and everyone else deserves better than that.

Minnesota Supreme Court Rules Mortgage Void Because One Buyer Never Signed - Marine Credit Union v. Detlefson-Delano

Wed, 29 May 2013 08:51:11 -0500

Vincent Howard and our Perris foreclosure defense lawyers were interested to see a rare victory for homeowners attempting to avoid foreclosure by arguing their mortgage is invalid. In Marine Credit Union v. Detlefson-Delano, the Minnesota Supreme Court ruled that Anne Detlefson-Delano's mortgage was invalid because her estranged husband, Jack Antonio, had not signed the loan papers when they refinanced. When Detlefson-Delano later defaulted and foreclosure proceedings started, she convinced the trial court that the mortgage was void because Antonio never signed it. The court of appeals reversed, reasoning that Antonio had signed a quitclaim deed before the refinance, but the Minnesota high court ruled that the quitclaim deed didn't explicitly waive his rights.

Antonio is a party to this case but has never participated. Detlefson-Delano originally acquired the home in 1994, when she and her first husband purchased it. She was awarded sole ownership of the property after her divorce, and the property became Antonio's homestead when he married Detlefson-Delano. In 2007, they listed it for sale, and Antonio signed a quitclaim deed in his wife's favor at their real estate agent's suggestion. Antonio, a long-haul trucker, was away from home frequently. But the property never sold, and instead they refinanced with MCU about six months later. MCU was aware of the quitclaim deed and the marriage. Detlefson-Delano said MCU told her Antonio didn't need to be there; the credit union said she led them to believe Antonio had abandoned the family. They have been estranged since 2009, when was also when Detlefson-Delano went into default and the foreclosure began.

The trial court in the foreclosure proceeding found that the quitclaim deed did not waive Antonio's homestead rights. (It also invited MCU to file another proceeding seeking liability from Detlefson-Delano for the note, aside from the mortgage. It has successfully done so.) The court of appeals reversed, however, finding that Antonio retained no homestead interest after the quitclaim deed.

The Minnesota Supreme Court has consistently held that mortgages are void when one spouse did not sign and no exception applies. MCU argued that an exception applies because Antonio's quitclaim deed conveyed both his legal interest in the property and his interest in the homestead. The Minnesota Supreme Court ultimately disagreed, finding no express waiver of Antonio's homestead rights. The mortgage doesn't fall into one of the statutory exceptions; it is not a conveyance between spouses, even if the quitclaim deed was. Nor did the quitclaim deed waive Antonio's homestead, rights, the court found. Minnesotans may waive homestead rights only when they unequivocally intended to do so, and the language of the quitclaim deed doesn't mention homestead rights. Thus, it found no waiver of his rights and voided the mortgage, reversing the appeals court.

Vincent Howard and our Santa Ana foreclosure defense attorneys are interested in the unusual outcome of this case. The credit union has no mortgage on the home but may still go after Detlefson-Delano personally for an unsecured debt. In a way, this is a bad outcome for both parties because the bank is unlikely to be able to collect the money. While Detlefson-Dealano's home can't be foreclosed, she is still liable for the debt and can be sued or have other debt collection action taken. In her situation, one choice might be to declare bankruptcy, because bankruptcy permits debtors to pay less than the full amount of an unsecured debt if they cannot afford to pay the whole thing. Of course, bankruptcy is not an easy decision; it harms your credit for years to come. Mortgage debts can sometimes become unsecured in bankruptcy when the home is deep underwater, but it's not universal. Vincent Howard and our Ontario foreclosure defense lawyers can help you learn more about whether this would be available to you in bankruptcy.

Federal Appeals Court Hands Victory to Plaintiff Alleging Breach of HAMP Contract

Mon, 27 May 2013 08:43:29 -0500

Because we've been following the housing crisis since the beginning--and representing people who have fallen victim to it--we have written a lot about lawsuits seeking to enforce the Home Affordable Modification Program. This federal program was denounced in the media as not working, but in the opinion of Vincent Howard and our Riverside County foreclosure defense attorneys, it was always doomed because it created no way for borrowers to enforce their rights via litigation. A series of cases in the federal appeals courts have held that HAMP itself creates no private right of action for borrowers, and there have been mixed results on state-law claims such as breach of contract. That's why we were interested to see a partial victory for a Massachusetts borrower in Young v. Wells Fargo Bank, a First U.S. Circuit Court of Appeals case.

Young refinanced her house in September of 2006, receiving a variable-interest loan with a starting rate of 7.8 percent. In 2008, she fell behind due to the death of her father and recession-related troubles. A payment she made to catch up in August 2008 was rejected; Wells Fargo told her it intended to foreclose. She negotiated with the bank for a week and sent $5,628.42, which Wells Fargo told her would trigger a forbearance agreement, but no agreement arrived and Wells Fargo later said there was no such agreement. After she called again, the bank did send an agreement, which she signed even though it actually increased her monthly mortgage payments.

By April 2009, she couldn't sustain these payments and hired a lawyer to help her get a loan modification. Wells Fargo offered her a HAMP loan modification in the fall, and she made all the payments in the three-month trial period. Nonetheless, Wells Fargo denied Young a permanent loan modification in January 2010, claiming her payments had been late. After her attorney called Wells Fargo, it said this letter was in error and she would be getting a permanent modification, but no such letter arrived. She received the permanent modification offer in June 2010 (five months after it had been promised), but it increased her monthly payment by $300. She declined to sign it and eventually filed suit. After the complaint was dismissed, Young appealed.

Young first appealed the dismissal of her allegations that Wells Fargo breached the HAMP trial agreement contract by increasing her payments. The First Circuit disagreed, saying the trial agreement didn't guarantee that the permanent modification wouldn't see an increase. Young had more luck with her allegation that the bank breached the contract by failing to timely offer a permanent loan modification. The language of the contract assumes the permanent workout would be offered at the end of the trial one, the court noted, and any contradictory language only makes the contract ambiguous. Thus, it reversed dismissal of that part of Young's complaint. It upheld dismissal of various other counts, but reversed again on her state-law unfair debt collection allegation, as well as the complaint for equitable relief. The case was then remanded.

This is a long opinion, but that's because the facts in it deserve to be aired. The shoddy treatment Young received is, in the experience of Vincent Howard and our Anaheim foreclosure defense lawyers, often typical of the way borrowers were treated when they applied for HAMP modifications. We have come to believe that these "miscommunications" and delays were usually intentional behavior by loan servicers that stood to make money by driving borrowers into foreclosure. By delaying and denying help to people with strained budgets, servicers can often create more late fees and servicing fees--and they had no interest in the underlying loan, so nothing to lose. And because HAMP failed to build in servicer accountability, this was often declared legal. Vincent Howard and our Chino foreclosure defense attorneys are proud to represent Californians fighting to enforce HAMP agreements and basic fair dealing with their loan servicers.

Nebraska Supreme Court Permit Deficiency Lawsuits When There Was No Foreclosure Sale - First National Bank of Omaha v. Davey

Thu, 23 May 2013 08:29:54 -0500

At Howard Law, P.C., our Riverside foreclosure defense lawyers represent Californians who are facing foreclosure or were deceived by their lenders at some point. Because we work in California, we don't always have to worry about deficiency lawsuits, which seek to extract from former homeowners the balance due after the home is sold and the bank recoups what it can from its investment. California law makes certain homeowners immune, but if you've ever refinanced, it's still an issue. There's even less protection in other states, and in First National Bank of Omaha v. Davey, the Nebraska Supreme Court found that state law didn't protect Scott and Deborah Davey from a deficiency lawsuit. The district court had dismissed the lawsuit as untimely, but the high court found the deadline didn't apply.

The Daveys took out their mortgage in 2009, securing the loan with a trust deed on the property. They soon defaulted, however, and there followed a judicial foreclosure. The property was sold at sheriff's sale in April of 2011, and confirmed the next month. Because the proceeds from that sale didn't cover all of the Daveys' debt, however, First National filed a deficiency lawsuit against them 99 days later, to recover the balance. In their answer, they cited a Nebraska state law that gives banks 90 days to file a deficiency lawsuit after a judicial foreclosure. The trial court agreed after a hearing.

The law in question is the Nebraska Trust Deeds Act, which authorizes the use of a trust deed as a security device in Nebraska. This is a common legal scheme in many states for mortgages. The Act includes procedures that permit the property securing a defaulted loan to be sold non-judicially, by a trustee. The Act also permits a deficiency action like this one, but provides a three-month deadline to sue. Thus, the high court said, it necessarily follows that the deadline applies to trustee's sales and not to judicial foreclosures. On appeal, First National made this argument, and said its statute of limitations should be Nebraska's general five-year deadline for enforcing written contracts. The high court agreed, citing specific language: "At any time within three months after any sale of property under a trust deed..." Indeed, it noted, the three-month deadline would be difficult to meet after judicial foreclosures, considering that judicial foreclosure sales need to be confirmed by the court. And because this action was brought within five years of a judicial foreclosure, the high court said, it is not time-barred.

Vincent Howard and our Yorba Linda foreclosure defense attorneys dislike deficiency lawsuits in general. After all, if the borrowers could not pay their monthly mortgage payment, it's unlikely that they would be able to pay a legal judgment for the much higher balance of the loan. Lenders may be willing to settle for less. Or, if bankruptcy is a reasonable option for your circumstances, it's possible that a bankruptcy could leave the lender with nothing. And if you want to defend the lawsuit in court, you can often argue that the lawsuit is untimely, that the lender should go after your private mortgage insurance provider, and more. If you'd like to talk about your options with an experienced attorney, call Vincent Howard and his team of San Bernardino County foreclosure defense lawyers today.

Sanctions for Failure to Negotiate Loan Mod in Good Faith Were Appropriate, High Court Rules - Jacinto v. PennyMac Corp.

Tue, 21 May 2013 09:34:02 -0500

Vincent Howard and our Riverside County foreclosure defense attorneys were interested to see a case out of Nevada that resulted in sanctions for a lender that misbehaved during loan modification proceedings. Nevada's foreclosure mediation program, put into place during the housing downturn, requires mediation in every foreclosure case. Most importantly, the state law provides penalties for lenders who negotiate in bad faith, as evinced by failure to show up prepared or failure to send someone with authority to negotiate in the first place. Both flaws were apparently present in the foreclosure mediation at issue in Jacinto v. PennyMac Corp., a Nevada Supreme Court case. Miguel Jacinto has the right to appeal, the high court ruled, but his request for a loan modification as sanctions did not succeed.

Jacinto's first mediation was with Citimortgage, which agreed to try a HAMP loan modification. Jacinto then sent documents as requested, which led Citimortgage to deny the modification. He requested court sanctions against Citimortage for failure to negotiate in good faith, and the district court ordered another mediation. In the meantime, PennyMac acquired the interest in the mortgage and stepped into Citimortgage's shoes for the second mediation. However, it failed to bring needed documents to the mortgage or send an official with the authority to negotiate. Jacinto again filed for judicial sanctions, requesting financial penalties, attorney fees and a court order for a loan modification. The court declined to impose anything but the attorney fees, and Jacinto appealed to the Nevada Supreme Court.

That court affirmed the order, after first establishing that a homeowner like Jacinto has the right to appeal at all. PennyMac argued that Jacinto is not an aggrieved party because the lower court did hear his case. The high court disagreed, saying the denial of his request for a judicially imposed loan modification adversely and substantially affected his property rights. Moving on to the sanctions themselves, Jacinto argued that the attorney fee order was insufficient and re-requested a judicially imposed loan modification. Nevada courts have discretion to choose which sanctions to order, other than the bare-minimum sanction of withholding a certificate saying the mediation was completed. The high court found that the trial court imposed more than the bare minimum because it also ordered attorney fees. Thus, it upheld the trial court's order.

The attorney fees in this case were $3,500. This is not insubstantial, especially to someone who is having trouble making mortgage payments, but Vincent Howard and our Santa Ana foreclosure defense lawyers suspect that the costs to Jacinto of PennyMac's bad faith were substantially higher. Assuming he was still trying to hold on to his home, every month without a final answer on a loan modification was a month when he either had to make an unaffordable payment or go deeper into arrears--and closer to foreclosure. Indeed, this may be the reason why so many loan servicers tried to drag out their loan modification decisions as long as possible--because if they can foreclose instead, they stand to earn a lot more money. Vincent Howard and our Colton foreclosure defense attorneys believe this behavior is illegal as well as in bad faith, and we help clients seek redress through the courts.

Nevada High Court Declines to Overturn Arbitration Award in Mortgage Case - Sylver v Regents Bank

Mon, 20 May 2013 08:53:05 -0500

At Howard Law, P.C., we focus on consumer debt and predatory lending issues, which includes litigation when appropriate. So our Corona foreclosure defense lawyers were interested to see a case from our neighbors in Nevada about the use of binding arbitration required by a mortgage contract. Binding arbitration is a type of private-sector "judging" that has become popular among large corporations. Consumer advocates don't always like it, because the system permits the party with more power (usually a corporation selling services to the consumer) to force the issue out of public courtrooms. And in private arbitration, there's a danger that the arbitrator will attempt to make the decision desired by the company paying his or her salary. Marshall Sylver made similar allegations in Sylver v. Regents Bank, a recent Nevada Supreme Court decision that upheld the arbitrator's decisions.

Sylver took out two loans in 2008: one to buy a house and another for commercial property. Unfortunately, financing never appeared for the commercial property and Sylver was unable to sell the prior home that was supposed to provide the financing for the new home. Regents filed a foreclosure complaint; Sylver's cross-complaint accused Regents of breach of fiduciary duty, false representations and mortgage lending without the proper Nevada credentials. The district court compelled arbitration, as the loan documents required. Regents told the arbitrator that a key witness was unavailable, but Sylver later claimed the witness had said he was available but was never asked to testify. Nonetheless, Sylver didn't ask for a continuance and the arbitrator ruled for Regents. On the bank's motion to confirm the award, Sylver argued that Regents had procured the award with undue means, and the judgment was against the manifest weight of the law. The district court confirmed the award.

On appeal, Sylver renewed both arguments. The Nevada Supreme Court started by defining "undue means" as intentional misconduct similar to fraud or corruption. It then found that Sylver hadn't met the burden of providing undue means influenced this award. The conduct he alleges--intentionally misrepresenting the availability of a witness--does not rise to the level of intentional bad faith equivalent in seriousness to fraud, it said. Sylver never offered evidence showing that the misrepresentation of the witness's availability was intentional, and due diligence could have turned up the information. Nor had Sylver shown a causal connection between the alleged misconduct and the award, the court noted. The high court also found that the award was not a manifest disregard of the law, a claim that was based on Regents's lack of proper credentials to make home loans in Nevada. The arbitrator concluded that this was illegal, but said the error was unintentional and not material to the issue at hand. The high court ruled that this was not a clear disregard of the law, and upheld the confirmation of the award.

Vincent Howard and our Garden Grove foreclosure defense attorneys suspect the outcome could have been different under another court. The Nevada high court reasoned that the public policy good of enforcing the loan outweighed the public policy good of enforcing the licensing law. It also noted that the goal of the licensing law was to prevent predatory lending by out-of-state lenders. This is precisely the allegation Silver was making about Regents, and a sympathetic court might have decided he had made a strong enough case. It's also worth wondering whether a Nevada trial court would have treated the misrepresentation about the witness as lightly as the Supreme Court seemed to. Discovery violations are sometimes the basis for sanctions, and rightly so--they undermine the goal of basic fairness. Vincent Howard and our Rubidoux foreclosure defense lawyers strongly advise clients not to sign onto an arbitration contract to get a mortgage.

Fourth Circuit Rules Liens Can Be Stripped in Repeat Bankruptcies Under BAPCPA - Branigan v. Davis

Fri, 17 May 2013 16:12:33 -0500

Vincent Howard and our Ontario personal bankruptcy attorneys were pleased to see a ruling on the scope of the 2005 changes to the bankruptcy law. In Branigan v. Davis, the issue was whether a portion of mortgages may be "stripped" from underwater properties in a Chapter 13 bankruptcy filed within four years of a successful Chapter 7. The trustee argued that the Bankruptcy Abuse Prevention and Consumer Protection Act forbade lien-stripping per se in these so-called "Chapter 20" cases. The bankruptcy court disagreed, and permitted Bryan Davis and Carla Bracey-Davis, and Marquita Moore, to bifurcate their home loans into secured and unsecured claims. The trustee appealed this to the district court and then to the Fourth U.S. Circuit Court of Appeals, but all of the courts affirmed.

Both the Davises and Moore, who filed two separate bankruptcies, had originally filed Chapter 7 bankruptcies that resulted in discharges, but re-filed in Chapter 13 so they could strip liens on real estate that had too little value to secure the liens. The Davises waited nearly a year between bankruptcy cases, during which time they had hoped for a loan modification and Bracey-Davis found a new job. Moore waited a week. In both cases, trustee Timothy Branigan challenged orders confirming their motions to strip the liens, and confirming their plans, but the bankruptcy judges ruled that BAPCPA does not create a per se rule against lien stripping in "Chapter 20" cases. The district court consolidated the two appeals and affirmed the rulings without comment.

The Fourth Circuit also affirmed the rulings. It first noted that previous unpublished rulings, and rulings from sister circuits, support the practice of stripping off now-valueless liens from encumbered property. Thus, a lien with no value--such as a second mortgage made during the real estate bubble--can be turned from a secured debt into an unsecured one by the bankruptcy court, then have the lienholder's rights modified in any way the court pleases. Bankruptcy courts are more split on lien stripping in "Chapter 20" cases, because BAPCPA forbids Chapter 13 debtors from receiving a discharge within four years of a Chapter 7 discharge. The trustee argued that lien-stripping depends on the availability of a discharge. However, the Fourth ultimately disagreed. The provision the trustee (and some courts) relied on applies only to a claim that has been valued, and thus does not apply to worthless liens, the court said. Congress had an opportunity to stop lien-stripping with BAPCPA, the court noted, and did not take it.

Vincent Howard and our Orange consumer bankruptcy lawyers are pleased by this result. Lien stripping has become common in the aftermath of the housing downturn, as many, many homeowners have found their mortgages underwater and been driven to bankruptcy. Stripping a lien doesn't necessarily benefit the bankruptcy filer in the short run--because the money freed up typically just goes to other creditors--but in the long run, it can mean fewer mortgage payments. And the ability to pay off other creditors is important, as anyone with a non-dischargeable tax or child support debt knows. Vincent Howard and our Norco individual bankruptcy attorneys hope this ruling, and others like it, will give access to that remedy to people who end up in "Chapter 20."

Bankruptcy Panel Approves Unsecured Claim by Private Parties Who Hold Mortgage - In re Rader

Wed, 15 May 2013 09:03:33 -0500

Vincent Howard and our Corona consumer bankruptcy lawyers frequently write about bankruptcy mortgage disputes involving a bank or loan servicer. But in In re Rader, the Bankruptcy Appellate Panel for the Ninth U.S. Circuit Court of Appeals ruled that a married couple who held the mortgage on another couple's property in Arizona should be permitted to pursue an unsecured claim for the "underwater" portion of the home debt. Robert and Sandra Carson held a mortgage on the real estate, which was purchased by Marshall and Barbara Rader. The claim was bifurcated and the home foreclosed. But more than a year later, the trustee argued that the Carsons should have pursued state-law remedies to collect the unsecured portion of that debt. The bankruptcy court disagreed, and the BAP for the Ninth U.S. Circuit Court of Appeals affirmed.

The Raders filed for Chapter 13 bankruptcy in 2010, and the case was converted a few months later to Chapter 7. Later that year, the Carsons moved for relief from the automatic stay so they could foreclose on the property, because the Raders were in default on their payment obligations. The motion indicated that the Carsons, Raders and trustee all agreed that the stay should be lifted. The motion was granted, and the Carsons filed a proof of claim for $739,100.61 for the debt. The bankruptcy court bifurcated this into a secured claim for $370,000--the contemporary appraised value of the property--and an unsecured claim of $369,100.61. A foreclosure sale was held at the end of 2010 and the Raders received a discharge the next month. More than a year later, in March of 2012, the trustee filed an objection arguing that the Carsons' claim should be disallowed because they should have been required to pursue the deficiency claim process laid out by Arizona law. The bankruptcy court overruled this, saying it would be impossible to file an adversary proceeding or a deficiency action without lifting the automatic stay.

On appeal, the trustee maintained that the Carsons could have pursued the unsecured portion of the claim without violating the automatic stay or the discharge injunction. The Carsons disagreed and noted that requiring them to pursue separate actions for the deficiency would be burdensome and a waste of resources. After consideration, the BAP found that the Arizona law at issue--which requires creditors to pursue a deficiency judgment within 90 days of a foreclosure sale--is preempted by the bankruptcy code because they conflict. The automatic stay and discharge injunction made compliance with Arizona law impossible, the panel said; the order lifting the stay didn't expressly address the issue and an order lifting a stay is strictly construed. And a post-discharge case would have violated the discharge injunction, because the Carsons could not have pursued it without naming the Raders. Finally, the panel said, this claim is a "core bankruptcy matter," and permitting another court to get involved would be inefficient and cumbersome. Thus, it affirmed the bankruptcy court.

Vincent Howard and our Anaheim personal bankruptcy attorneys believe this decision was in everyone's best interests. Though the debtor may benefit when the bankruptcy trustee excludes certain claims from the bankruptcy, it's not at all clear that the Raders would have benefited by having to defend an extra case against them brought in state court while also managing their bankruptcy. Bankruptcy exists as a way for debtors like the Raders to sort out their debts and pay what they can. As the BAP noted, Congress intended bankruptcy to be orderly and efficient. Going outside that process to create a new case is neither of those things, and in fact it might hurt the debtors because the second court would not be considering all of their financial circumstances with its decision. Given the large deficiencies faced by many people who bought homes during the real estate bubble, Vincent Howard and our Claremont individual bankruptcy lawyers believe it's better for debtors to have these debts considered as a whole.