Tuesday, December 21, 2010

CitiMortgage, Inc. v. Angela Nunez: Judge Arthur Schack dismisses foreclosure action for bank’s failure to comply with new OCA Rule

Judge Arthur Schack of Kings County dismisses without prejudice a foreclosure action commenced by CitiMortgage, Inc. against Angela Nunez.    CitiMortgage’s counsel agreed to file an affirmation now required by the Chief Administrative Judge for foreclosure cases pursuant to the October 20, 2010 Administrative Order.  After giving CitiMortgage a brief adjournment to obtain the requisite affirmation, Judge Schack ordered a dismissal of the case and commented, “The Court does not work for CITI and cannot wait for CITI, a multi-billion dollar financial behemoth to get its “act” together.”  Judge Schack rejected CITI’s request for more time to comply, stating that “Continuing the instant action without moving for a judgment of foreclosure and sale is the judicial equivalent of a ‘timeout,’ and granting a ‘timeout’ to plaintiff CITI is a waste of judicial resources.  Therefore, the instant action is dismissed without prejudice.”

Judge Schack quotes Chief Judge Lippman in the conclusion of his decision which explains the policy underlying for the new OCA Order:

We cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process, especially when that process involves basic human needs — such as a family home — during this period of economic crisis. This new filing requirement will play a vital role in ensuring that the documents judges rely on will be thoroughly examined, accurate, and error-free before any judge is asked to take the drastic step of foreclosure. 

There are reports that the new OCA Order has resulted in a dramatic decrease in the volume of foreclosure actions commenced in the NYC Metro area.  The New York Law Journal reports that foreclosure filings dropped from about 800 in the week the OCA Order was announced to about 100 in the second week of December. The drop off is particularly sharp in counties that had high foreclosure volumes, including Suffolk County (from 274 to 6) and Brooklyn (from 53 to 2). Queens County filings were nearly cut in half -- from 88 to 48 -- but that 48 means Queens accounted for nearly half the filings in the week.

SEC Subpoenas Big Banks' Mortgage Securitization Documents

The Securities and Exchange Commission (SEC) is reportedly investigating lenders’ procedures for packaging home mortgages into securities bonds for sale to investors. 

Reuters, citing two sources familiar with the probe, says the SEC sent subpoenas last week to Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Wells Fargo.

The news agency says the subpoenas focus on the earliest stage of the mortgage securitization process, in particular, the role of master servicers who manage the selection and maintenance of the home loan pools that go into mortgage-backed bonds, and whether or not the loans were properly transferred to the trusts that issued the securities. 

Sources also told Reuters that the SEC is seeking information about the role banks had in mortgage securitization, and the role trustees that issued the mortgage-backed securities (MBS) had in monitoring the performance of the underlying loans.

Questions about what entities had the legal right to foreclose on mortgages packaged as securities, as well as whether or not transfers of ownership were properly recorded when the loans were sold to investors, emerged when the recent robo-signing scandal surfaced and scrutiny of servicers’ documentation procedures intensified.

Why New York Foreclosures Are Grinding to a Halt See full article from DailyFinance

On Oct. 20, New York State Chief Judge Jonathan Lippman ended robo-signing in New York state foreclosures by requiring a special affirmation from the banks' attorneys. They now must swear that they know the banks' documents are true because they checked the paperwork.

At the time, attorneys in the state told me that they expected foreclosure filings by the big banks to halt, or nearly so, for up to several months. Eventually, they said, the banks and their attorneys would create a new process that allowed the attorneys to make the affirmations.

The first empirical evidence is in, and the rule has indeed choked off the filings.

Rapid Response to the New Rule

The New York Law Journal reported that foreclosure filings dropped from about 800 in the week the rule was announced to about 100 in the second week of December. The drop off is particularly sharp in counties that had high foreclosure volumes, including Suffolk County (from 274 to 6) and Brooklyn (from 53 to 2). Queens County filings were nearly cut in half -- from 88 to 48 -- but that 48 means Queens accounted for nearly half the filings in the week.

While the 100 cases in that week were the lowest since the rule started, the bulk of the drop happened quickly, as the New York Law Journal article shows in nifty chart measuring the plunge.

I spoke with three Suffolk County judges or their representatives, and they confirmed that hundreds of foreclosure filings have been withdrawn. Erin Michael Kay, secretary to Suffolk County Supreme Court Judge Jeffrey Arlen Spinner, says his caseload was down to 250 (it was much higher) due to the number of cases withdrawn pending the filing of the "Lippman affirmation." As of now, no such affirmations have been filed in the cases still pending before him.

Further Affirmations Required

Similarly, on Dec. 1, Suffolk County Supreme Court Judge Peter Fox Cohalan issued an order dismissing all 127 foreclosures pending before him because the banks' attorneys hadn't filed the affirmation. While all the cases can be refiled once the banks documents are in order, Cohalan's order requires the banks to go beyond the Lippman affirmation.

In his court at least, a bank employee is going to have to sign an affirmation even more detailed than what Judge Lippman ordered for lawyers. The bank affirmation comes from Cohalan's concern with robo-signing, explains Daniel J. Murphy, Judge Cohalan's chief law assistant.

Going forward, banks that want to foreclose in Cohalan's court will have to have "whoever is looking at the documents provide an affidavit that the amounts are correct, the mortgage is present, the assignments of mortgage have been correctly signed and dated and the paperwork before court is accurate." To prevent robo-signing of those affidavits, Cohalan also requires bank representatives to list every document they reviewed for the affidavit. That list must include the note, and they must explain who they are, how long they've been at the bank and what their educational background is.

Only Real Vice Presidents Can Sign

Murphy explains the purpose of that mini-resume is to make sure these employees understand what they're looking at and that any "person claiming he is the vice president of the bank is in fact a vice president of the bank." While that sounds silly -- why would someone sign a document with an inaccurate title -- the robo-signing scandal has exposed the practice of people signing as a vice president who have no link to the financial institution except for a resolution authorizing them to sign.

Kay says Judge Spinner hadn't decided whether to impose a similar rule in the cases he hears. Judge Patrick A. Sweeney, another Supreme Court Judge sitting in Suffolk County, tells me that since he's retiring in a couple of weeks he's not imposing any new rules now. But he suggests that banks will ultimately be able to get their acts together and file proper papers.

Judge Sweeney oversaw the part of the New York foreclosure process in which banks and homeowners try to negotiate a modification. He says he became frustrated with attorneys and witnesses who appeared for the foreclosing banks with no real knowledge of the case at hand. So, Sweeney started insisting that attorneys in charge of the foreclosure show up, instead of "per diem" attorneys hired to make the appearance who had no knowledge of the case.

Sweeney also requires the owner of the loan, not just the servicing bank, to show up, so someone with real decision power would be present. And, Sweeney notes, the banks usually complied. That's why he expects they'll find a way to enable their lawyers to file the Lippman affirmation, of which Sweeney says the lawyers "should have reviewed the papers all along, but with the volume they got sloppy."

Judge Cohalan isn't trying to stop banks from foreclosing with his new rule, notes Murphy:
"When the paperwork is correct, we'll have a foreclosure settlement conference at which point the judge will conference with both the attorney for the bank and the homeowner, and see if there is some way to save the person's home. And we'll see if the bank is being reasonable. But if the bank is being reasonable, the foreclosure will proceed.

If people can't afford their home, if they can't pay their bills, the foreclosure will happen. Homeowners have to have a plan and the ability to pay. The banks are entitled to be paid."