Bankruptcy and Mortgage Stripdowns: Learning from Experience

by Jann Swanson 

Using the farm crisis of the early 1980s as a model, two economists have refuted several of the arguments against legislation that would permit bankruptcy judges to cramdown or stripdown of mortgage loans.  Thomas J. Fitzpatrick IV and James B Thomson, economists with the Federal Reserve Bank of Cleveland, published their paper, Stripdowns and Bankruptcy: Lessons from Agricultural Bankruptcy Reform in the bank's Economic Commentary on its website.

Allowing stripdowns of mortgages during Chapter 13 bankruptcy reorganization has been suggested as one way to deal with the housing crisis.  If such legislation were passed, bankruptcy judges would be allowed to reduce the outstanding balance on a mortgage loan to the actual value of the underlying collateral, turning the remaining balance of the mortgage into an unsecured claim which would receive the same proportionate payout as other unsecured debts included in the bankruptcy petition. Some proponents of this provision maintain it could be a partial solution to the foreclosure crisis, reducing the number of homes going into foreclosure by improving the chances of a successful loan modification.  Others favor the law on the basis of equity, saying that mortgages on rental properties and vacation homes as well as virtually every other type of secured loan can be stripped down during Chapter 13 proceedings.

Those opposing stripdown legislation fear an increase in mortgage interest rates, apparently in response to any increase in loan modifications rather than to the stripdown itself.  The unintended consequences of this, they argue, might be to make homeownership less affordable and accessible to low and moderate income families.  Opponents also cite the possibility of an avalanche of Chapter 13 filings should stripdowns become law in the midst of the current financial crisis. Lenders have been the most vocal of opponents, arguing that stripdowns would shift losses from borrowers to lenders, give bankruptcy judges too much discretion, and that such shifting is unfair in that it changes the rules of contracts after the fact. 

The economists maintain that such arguments are best viewed against the empirical evidence from the actual experience with stripdowns done under legislation establishing the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986. This legislation established a separate chapter in the U.S. Bankruptcy Code, Chapter 12 intended solely for farmers.  The legislation was passed in response to an agricultural and bank crisis in the 1980s and originally had a sunset provision, but worked well enough that it was twice extended and then made permanent in 2005. 

The agricultural lending crisis had some strong parallels with the more recent home lending meltdown, as well as, Patrick and Thomson point out, some distinct differences and many of the claims and concerns expressed in the current debate were central in the debate over Chapter 12. 

The agricultural lending crisis started in the 1970s when US farm exports rose over 500 percent, from $8.24 to $43.78 billion in a nine year period starting in 1972. This led to a dramatic rise in commodity prices and farm incomes over that time period. Net farm income peaked at over $27 billion in 1979, a rise of 41 percent over the decade. 

It was a typical boom-bust scenario: When prices for their goods were rising, farms expanded and farm real estate prices increased significantly; in Iowa, for example, the price of farm land more than quadrupled from 1970 to 1982. But, while demand for their products had increased sharply in the early 1970s, farmers watched it fall almost as fast in the late 1970s and early 80s. With the drop in demand and price for products the demand and price for land fell too.  That Iowa land lost nearly two-thirds of its value in five years, and the same thing happened nationally.  The average price of farmland increased more than 350 percent by 1982 then fell by more than a third in the next five years. 

As the price was going up, so did agricultural debt loads as many farmers borrowed to acquire additional acreage. Cash-short and expecting increased income, many farmers used variable-rate notes to purchase real estate. Caught up in the boom, lenders eased underwriting standards, relying on the continued appreciation of the land for security rather than the ability of the farmers to service their debt.  But as prices and cash flows decreased and the variable-rate notes used to purchase farm real estate reset, many farmers saw their interest rates increase, found that they could not make payments and were underwater on their mortgages.

Farmland values peaked in 1981 in the Midwest, where the land-price appreciation had been the greatest, and declined by as much as 49 percent over the next few years before bottoming out in 1987. Farm-sector debt quadrupled from the early 1970s through the mid-1980s. Debt declined by one-third from 1984 through 1987, but much of this reduction reflected the liquidation of farms.

Many farmers, especially in the South and Midwest, were underwater with their agricultural loans and were in danger of losing their primary residences with little relief possible under the existing bankruptcy laws.  Chapter 13 did not allow for modification of debt secured by a primary residence, and Chapter 11, intended for corporations, was too complex for most small and medium sized farmers and also contained provisions that made a stripdown problematic.

Some states enacted moratoriums on foreclosures but they provided only temporary relief given the underlying economic factors (does any of this sound familiar yet) and left many farmers unable to service their debt and with almost no possibility of renegotiating their secured loans. 

Fitzpatrick and Thomson point out that, unlike in the current foreclosure crisis, the troubled debt then was highly concentrated a few Farm Credit Banks, Farmer Mac and commercial banks in the affected regions.  Nonetheless, these agriculturally related banks began to fail in 1984 and accounted for a third of all bank failures between 1983 and 1987.  This led to the Chapter 12 legislation and its related stripdowns provisions. Despite the same arguments we hear today, Congress permitted stripdowns for farmers because voluntary modification efforts, even when subsidized by the government, did not lead agricultural lenders to negotiate loan modifications. 

The actual negative impact of the legislation was minor. Even though the new section of the Bankruptcy Code was created specifically for farmers, it did not change the cost and availability of farm credit dramatically. In fact, a United States General Accounting Office (1989) survey of a small group of bankers found that none of them raised interest rates to farmers more than 50 basis points. The economists say that while this rate change may have been a response to the Chapter 12, it is also consistent with increasing premiums due to the economic environment and  suggest that the changes in the cost and availability of farm credit after the bankruptcy reform differed little from what would be expected in that economic environment, absent reform.

The Commentary says, "What was most interesting about Chapter 12 is that it worked without working.  According to studies by Robert Collender (1993) and Jerome Stam and Bruce Dixon (2004), instead of flooding bankruptcy courts, Chapter 12 drove the parties to make private loan modifications. In fact, although the U.S. General Accounting Office reports that more than 30,000 bankruptcy filings were expected the year Chapter 12 went into effect, only 8,500 were filed in the first two years. Since then, Chapter 12 bankruptcy filings have continued to fall."

Despite the controversy that accompanied Chapter 12 and is stirring around the idea of a stripdown authority today, economists say that the "effects of the stripdown provision, in place for more than two decades, on the availability and terms of agricultural credit suggest that there has been little if any economically significant impact on the cost and availability of that credit."  They do, however, point out some significant differences between the agricultural foreclosure crisis of the 1980s and the current home foreclosure crisis. 

"First, the structure of the underlying loan markets is different. Unlike mortgages today, few if any of the farm loans in the 1980s were sold or securitized. Moreover, there was more direct government involvement in agricultural loan markets in the 1980s than there was in the mortgage markets leading up to the current housing crisis. Finally, the scale of the current foreclosure crisis is several times larger than the 1980s agricultural crisis, which was limited geographically to the Midwest and Great Plains states. Yet, despite these differences, the response to the farm foreclosure crisis and the impact of bankruptcy reform on agricultural credit markets is still informative for the current debate."

Justice Maltese of Richmond County finds that homeowner’s reliance on a non-attorney’s “expertise” in foreclosure litigation constitutes a reasonable excuse to vacate a judgment of foreclosure and sale on default pursuant to CPLR 5015(a)

By Nicholas M. Moccia

     Law Offices of Robert E. Brown, P.C.

In a decision rendered on August 3, 2010, Justice Joseph J. Maltese of the Supreme Court of the State of New York, Richmond County, vacated a judgment of foreclosure and sale pursuant to CPLR 5015(a) and held that a homeowner’s misplaced reliance on a non-attorney’s “expertise” in foreclosure litigation constitutes a “reasonable excuse” for the purposes of vacating a homeowner's default pursuant to CPLR 5015(a).

Justice Maltese writes:

The residential real estate foreclosure crisis has ensnared communities, both large and small from coast to coast.  And as this crisis continues to unfold before the eyes of the courts and the public, the unsavory actions taken by mortgage brokers, lenders and some predatory refinance facilitators is outrageous.  While the public only begins to learn of the causes of the current rampant foreclosure filings, the courts have already begun to see a cadre of unscrupulous individuals promising foreclosure cure-alls that prey upon those already approaching an economic rock bottom.

In this case we have a defendant, [RC], who initially engaged an attorney as she sought to refinance her way out of foreclosure by consulting with HCI Mortgage Bank.  According to the defendant, she became the victim of a “scam” when she attempted to refinance her loan to prevent the plaintiff from foreclosing.  This left to her filing a bankruptcy petition, which was the result of poor advice from “refinance specialists who were attempting to slow down the process in order to convince the defendant to take out yet another loan with a lender they represent.”

Justice Maltese continues:

Here, while the defendant realized that she was not savvy enough to navigate the field of foreclosure litigation on her own, she put her trust in a licensed realtor, rather than in a new attorney.  The record indicates that Herricson Torres, a licensed realtor, purportedly assisted [RC] in preparing this order to show cause to help guide her through the litigation process demonstrates the rampant economic opportunism of a growing industry that preys on those least able to support it.  Mr. Torres’s actions are the very definition of the unauthorized practice of law.  (Emphasis supplied).

This court finds that [RC’s] subsequent reliance on Torres’s “expertise” to stop the foreclosure sale as evidence of a larger problem in the area of foreclosure litigation…Based on the totality of the circumstances the court finds that [RC’s] reliance on Herricson Torres’s “expertise”, rather than on a licensed attorney constitutes a reasonable excuse for her default.

A defendant seeking to vacate a default judgment must demonstrate both a reasonable excuse for the default, and the existence of a meritorious defense.  Orwell Bldg. Corp. v. Bessaha, 5 A.D.3d 573 (2d Dep’t 2004).  A motion to vacate a default is addressed to the sound discretion of the trial court and, absent an abuse of discretion, the court’s decision will not be disturbed.  Gleissner v. Singh, 264 A.D.2d 811 (2d Dep’t 1999).  Public policy favors the resolution of cases on their merits, and courts have broad discretion to grant relief from pleading defaults where the defaulting party has a meritorious claim or defense, the default was not willful, and the opposing party was not prejudiced.   Harris v. City of New York, 30 A.D.3d 461 (2d Dep’t 2006).  The determination of whether there is a reasonable excuse for a default is a discretionary, sui generis determination to be made by the court based on all relevant factors, including the extent of the delay, whether there has been prejudice to the opposing party, whether these has been willfulness, and the strong public policy of resolving cases on the merits.  Harcztark v. Drive Variety, Inc., 21 A.D.3d 876 (2d dep’t 2005).

Here, Justice Maltese found that a defendant homeowner’s misplaced reliance on the expertise of a non-attorney in foreclosure litigation constitutes a “reasonable excuse” within the meaning of CPLR 5015(a).

The defendant homeowner eventually received legal assistance from Margaret Becker, Esq., from Staten Island Legal Services, and later from Robert E. Brown, Esq. of the Law Offices of Robert E. Brown, P.C., who expanded on the defendant homeowner’s initial order to show cause resulting in the favorable decision rendered by Justice Maltese discussed herein. 

For more posts on Justice Maltese see below:

http://www.wallstreetmainstreet.com/2010/07/judge-maltese-gives-homeowner-another.html

http://www.wallstreetmainstreet.com/2010/06/judge-maltese-denies-deustche-banks.html

Judge Maltese Gives Homeowner a Another Chance to Answer

By:       Kate Cavallaro and Nicholas Moccia, Esq.

            Law Offices of Robert E. Brown, P.C.

            In HSBC Mtge. Corp. (USA) v. Enobakhare, 2010 NY Slip Op 31925(U)(Sup. Ct. Richmond County 2010), Plaintiff HSBC seeks summary judgment dismissing the Defendant homeowner’s answer and granting Plaintiffs application for an Order of Reference.  HSBC commenced the instant foreclosure action in January of 2009 and the homeowner entered an answer pro se in February of the same year.  Later in 2009 defendant homeowner retained counsel, and new counsel filed a motion for leave to amend the original answer on behalf of the homeowner. 

            HSBC argues that it is entitled to summary judgment dismissing the Defendant homeowner’s answer in its entirety because HSBC has provided the mortgage, note, proof of assignment of the note and mortgage and evidence of the Defendant’s default.  The Court notes that a ruling on a summary judgment in this matter was not yet “ripe for decision and must be denied with leave to renew,” since a mandatory settlement conference has not been held as required by CPLT 3408.  CPLR § 3408 provides that “in any residential foreclosure action involving a high-cost home loan…, or a subprime or nontraditional home loan, … in which the defendant is a resident of the property subject to foreclosure, the court shall hold a mandatory conference within sixty days after the date when proof of service is filed with the country clerk, … for the purpose of holding settlement discussions pertaining to the relative rights and obligations of the parties under the mortgage loan documents, including, but  not limited to determining whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home, and evaluating the potential for a resolution in which payment schedules or amount may be modifies or other workout option may be agreed to, and for whatever other purpose the court deems appropriate.” Once a settlement conference has been held pursuant to CPLR 3408, the plaintiff may renew its summary judgment motion if applicable. 

            The Defendant seeks leave to serve an amended answer to the Plaintiff’s complaint which includes several affirmative defense and counterclaims that were previously unasserted.  “Leave to amend pleasing is a discretionary matter that is generally favorably exercised in the absence of prejudice or surprise or unless it appears that the proposed amendment plainly lacks merit.”  In this matter, the Court opined that the homeowner’s proposed affirmative defenses may have merit and the Plaintiff has failed to show surprise or prejudice due to the Defendant’s delay in asserting the affirmative defenses.  Since Plaintiff HSBC has not established that it will be prejudiced by allowing the Defendant to serve an amended answer and the proposed affirmative defenses may have merit, the Court held that it is within the Court’s discretion to permit the Defendant to submit an amended answer. 

            The Plaintiff also argues against the Defendant’s attempt to include certain affirmative defenses that the Plaintiff claims have been waived (pursuant to CPLR 3211) since the Defendant failed to allege them in its original answer.  The Court notes that while the affirmative defenses should have been raised in the original answer, defenses that are ordinarily waived under CPLR 3211 “can nevertheless be interposed in an answer amended by leave of court… so long as the amendment does not cause the other party prejudice or surprise resulting directly from the delay.”  For this reason the Court permitted the Defendant to include the affirmative defenses that were allegedly waived for failure to raise them in the original answer. 

            Accordingly, Judge Maltese denied Plaintiff HSBC’s motions for summary judgment and for the dismissal of Defendant’s Answer is denied with leave to amend upon completion of a mandatory settlement conference; and Judge Maltese further ordered that Defendant’s motion for leave to serve an amended answer was granted.  Lastly, Judge Maltese ordered that all parties appear for a mandatory settlement conference pursuant to CPLR § 3408. 

             

Warning to Homeowners in Foreclosure, “Comply or the Court will Deny”

By:       Kate Cavallaro and Nicholas Moccia, Esq.

            Law Offices of Robert E. Brown, P.C.

Recently, Judge Joseph J. Maltese of the Richmond County Supreme Court, denied a defendant homeowner’s motion to vacate a judgment of foreclosure and sale because of the Defendant’s failure to comply and facilitate the mediation process held by the Courts.  See Central Mtg. Co. v. Elfassy, 2010 NY Slip Op 31926 (U)(Sup. Ct. Richmond County 2010).  The homeowner began defaulting on her loan in late 2008 when the homeowner failed to make any payments.  Plaintiff subsequently accelerated the mortgage and brought an action to foreclose its mortgage by filing a summons and complaint in May of 2009.  The homeowner’s first mistake in dealing with this foreclosure action was her failure to file an answer to the banks’ summons and complaint.  It appears that the homeowner was also properly served with the summons and complaint and, therefore, the Court noted that the homeowner did not otherwise have a reasonable excuse for her failure to answer.  Despite the fact that the defendant homeowner failed to appear in the foreclosure action, discussions between the parties occurred thought the proceedings with regard to the potential for a loan modification.  The homeowner also made an application for hardship assistance, yet, failed to provide the plaintiff Bank with requisite documentation and proof of hardship.  Additionally, two separate conferences were held, in which the court acted as mediator.  Judge Maltese notes that “despite the court’s suggestion as to what documents to bring … [Defendant] failed to bring the documents to court for either of the conferences.” He further notes that the conferences and separate discussions between the parties never resulted in a loan modification.

            The Defendant homeowner argued, among other things, that Defendant was entitled to vacate the default judgment and that the Court should have granted the Defendant an extension of time to appear or enter a pleading in this case.  In its decision, the Court notes that “in order to vacate a default judgment …the defendant must establish both a reasonable excuse for default and a meritorious defense.”  Here, the Court observed that the homeowner failed to provide any excuse for her failure to appear in the action prior to the entry of default.  Since the homeowner “has failed to offer a reasonable excuse for her default, the Default Judgment of Foreclosure and Sale cannot be vacated.”   Furthermore, the Court does note that “there is a string public policy to resolve cases on the merits, rather than on default, [Defendant] fails to set forth a reasonable excuse for default and a meritorious defense.”  Judge Maltese clarifies that while the Court is not unsympathetic to the home homeowner’s situation, that sympathy does not justify setting aside a duly entered judgment absent some showing of a reasonable excuse for default and a meritorious defense. 

            This action is a prime example of how a homeowner cuts off potential avenues of relief and hopes of loan modifications by simply failing to take the appropriate measures to address an impending foreclosure.  Had the homeowner initially entered an answer in this action or at the very least complied with the document requests from the Court, the homeowner may have a much greater opportunity of mitigating her losses and/or securing a loan modification from the bank.  Unfortunately, this homeowner’s inattention and non-compliance has caused the Court, despite its sympathies to the homeowner, to deny Defendant homeowner’s motion in its entirety and affirm the Plaintiff bank’s default judgment of foreclosure and sale. 

Nassau County Court seeks to sanction Steven J. Baum, P.C. for irregularities in foreclosure eviction

 By Kate Cavallaro and Nicholas M. Moccia, Esq.

      Law Offices of Robert E. Brown, P.C.

Petitioner Federal Home Loan Mortgage Corporation ("FHLMC") commenced a holder-over proceeding to evict Respondent Paul Raia from his home. The underlying eviction stems from the foreclosure brought by Well Fargo Home Mortgage, Inc. (“Wells Fargo”), resulting in the sale of the Paul Raia’s home (“Subject Premises”). At the sale, Petitioner Federal Home Loan purported to be the successful bidder and the rightful occupant of the Subject Premises. However, the court found that this was not in fact the case.

A later examination of the documents submitted in support of FHLMC’s petition indicated that Wells Fargo was the actual lender that had a security interest in the Subject Premises. Additionally, it was revealed that a number of the sworn allegations that were asserted in the petition were false. Specifically, the court took issue with certain representations made by the law office of Steven J. Baum, P.C. regarding FHLMC’s right to evict Paul Raia post-auction. The court held that it “will hold a hearing to determine what sanctions if any, that may be imposed upon Steven J. Baum, P.C. for the false representations made in the petition,” as counsel for FHLMC’s.

The court found that Wells Fargo—and not FHLMC—was the successful bidder at the foreclosure auction of the Subject Premises. However, FHLMC claims that Wells Fargo assigned its auction bid to FHLMC. Upon examination of “Assignment of Bid” document, the court noted that it contained the signature of an attorney from Steven J. Baum, P.C., although there was no indication on whose behalf the firm was signing. “Mr. Baum’s office claims to have the authority to execute the document for Wells Fargo but provides no evidence in support of that allegation.” Respondent asserts that the "Assignment of Bid" is invalid and ineffective because it is not executed by Wells Fargo, thus FHLMC never acquired title to the bid, the collateral, or the right to the possession of the cooperative apartment, and Petitioner lacks standing to institute this proceeding. The firm of Steven J. Baum, P.C. alleges to have the authority to assign the bid on behalf of Wells Fargo because the firm represented Wells Fargo in the cooperative foreclosure sale on January 5, 2010. However, neither a power of attorney to Steven J. Baum, P.C. nor a supporting affidavit from Wells Fargo was presented with the "Assignment of Bid." For this reason the Court found the assignment invalid.

This court granted Respondent Raia’s motion dismissing the holdover proceeding with prejudice due to the finding that FHLMC lacked a possessory interest in the subject premises. As noted earlier, the Court has also set a date for a hearing to determine what, if any, sanctions should be imposed against the law firm of Steven J. Baum, P.C., for the false statements made in the original petition. 

See Federal Home Loan Mtge. Corp. v Raia, 2010 NY Slip Op 51287(U), (District Court Nassau County, 2010).

Financial Freedom SFC v. Slinkosky, Supreme Court Suffolk County

By Kate Cavallaro

     Law Offices of Robert E. Brown, P.C.

The plaintiff commenced this action on March 26, 2009 to recover loan proceeds allegedly given pursuant to an agreement to obtain a Home Equity Conversion Mortgage loan [i.e. a reverse mortgage] on the Defendant’s home. The plaintiff alleges that it advanced monthly funds to William Slinkosky totaling $297,344.08 and that upon his death, his estate failed to pay the note that came due as required under the terms of the note and mortgage. The defendants answered asserting a defense of unconscionability and unclean hands; alleging that the Plaintiff engaged in predatory lending practices and schemes, both by unreasonably inducing the homeowner to enter into the mortgage and because the loan origination fee exceeded the maximum allowable fee. 

The plaintiff now moved for summary judgment. “A plaintiff seeking foreclosure must establish that it was the owner or holder of the note and mortgage at the time that it commenced the foreclosure action.  See, Mortgage Elec. Registration Sys. v. Coakley, 41 AD3d 674 (2nd Dept., 2007); Federal Natl. Mtge. Assn. v. Youkelsone, 303 AD2d 546 (2nd Dept., 2003); see also, Wells Fargo Bank, N.A. v. Marchione, 69 AD3d 204 (2nd Dept., 2009)).

Here, the plaintiff sought to foreclose the first mortgage but failed to submit a copy of the first note.  The estate that now represents the homeowners also moved for summary judgment. 

“According to the plaintiff's attorney, the Slinkosky house was appraised at $375,000.00, two percent of which would be $7,500.00. He points out that the loan origination fee of $7,255.80 is less than the maximum permitted fee of $7,500.00. However, the plaintiff's attorney does not clearly indicate what "the maximum mortgage amount for a one-family residence that HUD will insure in an area under Section 203 (b)(2) of the National Housing Act" would have been…”  Without certain documents to prove the truth of certain allegations the Court is unable to render proper decisions and for that reason the initial motions were denied, without prejudice and allowed for renewal. If seeking to renew, the plaintiff “shall submit complete copies of all loan and mortgage documents relating to the subject transaction including the first note in favor of Somerset, the Home Equity Conversion Loan Agreement and any attached payment plan for repairs and the Repair Rider” and “a statement in affidavit form from someone with personal knowledge explaining: how the plaintiff is related to Somerset, whether Somerset was an FHA approved lender; why two notes and two mortgages were executed on the same date on the subject property and which has priority; which entity actually provided the loan proceeds and which entity received the loan origination fee; whether the Slinkoskys received information pursuant to 12 USC §1715z-20 (former [d][2][B], [d][2][C] and [f]); and whether the plaintiff is seeking to foreclose a term or tenure reverse mortgage loan (see, Real Property Law §280-a [1]).”

Based on the foregoing, explanation the Court ordered that the default judgment against the homeowners; estate be vacated, and a referee is to be appointed.  Additionally, the Defendant’s motion for summary judgment dismissing the complaint is similarly denied but without prejudice for leave to renew.  

Link to  Financial Freedom SFC v. Slinkosky, 2010 NY Slip Op 31602(U)(Suffolk County 2010)

California attorneys disbarred for misconduct associated with loan modification services

By Kate Cavallaro
     Law Offices of Robert E. Brown, P.C.

The California State Bar Association is cracking down on lawyers whose misconduct is associated with loan modification services. The State Bar of California launched a task force on loan modification and since its launch about a year ago; the Bar “has obtained the resignation of 13 attorneys.” Most recently, two attorneys were disbarred for lending their names as attorneys to several non-attorney organizations. One individual attorney was cited because he “lacked control and failed to supervise and of the organizations” and “this lack of control and failure to supervise consequently led to, among other things, the unauthorized practice of law, misrepresentations and client harm.” Another attorney who was recently disbarred owned and operated a loan modification business by the name of Advocate for Fair Lending. The article notes that there were 18 examples in which the attorney’s clients were not helped and also asked for refunds. It further noted that the attorney is accused of using “Advocate [the loan modification business] and his status as an attorney to convince cash strapped homeowners to pay him thousands of dollars in hopes of saving their homes from foreclosure.” It is even alleged that some clients were in an even worse position after retaining the services!

“Homes lost to foreclosure on track for 1M in 2010”

By Kate Cavallaro
     Law Offices of Robert E. Brown, P.C.

An article from dailyfinance.com provides information  on the thousands of homeowners who are likely to lose their homes to foreclosure this year.  “Nearly 528,000 homes were taken over by lenders in the first six months of the year,” according to Realty Trac Inc. The article states the “surge in foreclosures reflect a crisis that has shown signs of leveling off in recent months but remains a crippling drag on the housing market and the economy.”  Statistics from the article provide that “on average, it takes about 15 months for a home loan to go from being 30 days late to the property being foreclosed and sold.” Furthermore the “number of homeowners that received a legal warning that they could lose their homes in the first half of the year climbed 8 percent from the same period last year.”  Additionally, about 1.7 million homeowners received a foreclosure-related warning,” which is equivalent to about one in 78U.S. homes.   Foreclosed home obviously have a terrible effect on the individual homeowners but also on the community as a whole.  When a home is sold as a result of foreclosure it is generally done do at a severely depressed value, ultimately effecting the market value of surrounding homes in the area.

Banks repossess US homes at record pace

Thu Jul 15, 2010 12:01am EDT

By Lynn Adler

NEW YORK July 15 (Reuters) - Banks repossessed a record number of U.S. homes in the second quarter, but slowed new foreclosure notices to manage distressed properties on the market, real estate data company RealtyTrac said on Thursday.

The root problems of job losses and wage cuts persist, making a sustained U.S. housing recovery elusive.
Banks took control of 269,962 properties in the second quarter, up 5 percent from the prior quarter and a 38 percent spike from the second quarter of last year, RealtyTrac said in its midyear 2010 foreclosure report.
Repossessions will likely top 1 million this year.

"The underlying conditions haven't improved," RealtyTrac senior vice president Rick Sharga said in an interview.

The housing market still grapples with "unemployment, economic displacement in general, and still sits on over 5 million seriously delinquent loans that in all likelihood will at some point go into foreclosure," he said.
In 2005, the last "normal" year in housing, Sharga said, about 530,000 households got a foreclosure notice and banks took over a comparatively minuscule 100,000 houses.

This year more than 3 million households are likely to get at least one foreclosure filing, which includes notice of default, scheduled auction and repossession, Irvine, California-based RealtyTrac forecasts.

In the first half of the year, foreclosure filings were made on 1.65 million properties. That was down 5 percent from the last half of 2009 but up 8 percent from the first half of last year.

One in every 78 households got at least one foreclosure filing in the first six months of this year.

Justice Minardo vacates a default judgment and dismisses Bank’s foreclosure action

By:  Kate Cavallaro

       Law Offices of Robert E. Brown, P.C.

Justice Minardo of the Supreme Court, Richmond County, granted a defendant homeowner’s order to show cause to vacate a default judgment of foreclosure and dismissing the entire action without prejudice due to plaintiff bank’s lack of standing. The defendant was represented by the Law Offices of Robert E. Brown, P.C. This action to foreclose a mortgage was commenced by the filing of a summons and complaint in December of 2006. Defendant homeowner was never personally served and defendants did not receive any acceleration notice as required. Unbeknownst to the defendant, the Court granted Plaintiff’s unopposed default judgment in June of 2009. Remarkably, at the same time the default judgment was entered, the parties were involved in settlement discussion. This unilateral action of moving forward without defendants knowledge indicates plaintiffs breach of its duty of good faith. Additionally, an audit of the loan documents revealed numerous other violations on both the State and Federal level, including Truth in Lending Act violations. Furthermore, the audit indicated that the plaintiff bank lacked the necessary standing and capacity to prosecute the foreclosure action. Defendants through their counsel, the Law Offices of Robert E. Brown, P.C., also argued that plaintiff failed to elect its remedies by pursuing simultaneous actions for both a judgment on a note and a judgment of foreclosure under the mortgage should be dismissed. Defendant’s counsel argues that “New York law has long been clear that a plaintiff with rights on a note and a mortgage must elect between the remedy of an action on the note or the remedy in foreclosure…. A plaintiff may not have causes of action for both remedies in a single action.” Citing President and Directors, Etc. Co. v. Callister Bros., 526 A.D. 1097, 11 N.Y.S.2d 593 (2d Dep’t 1939), aff’ed 282 N.Y. 629 (1940); see also White v. Wielandt, 259 A.D. 676, 678, 20 N.Y.S.2d 560, 561-563 92d Dep’t 1940. The rule that a plaintiff cannot simultaneously seek a judgment on the note and a judgment of foreclosure is echoed in New York RPAPL § 1301(a,) which states that without prior leave of the Court, simultaneous actions of this kind are barred.

With regard to vacating the default judgment, Defendants further argue that pursuant to CPLR 317, the Court has discretion to grant relief from judgment where defendant was served with a summons other than by personal delivery and has a meritorious defense to the underlying foreclosure action, Larman v. Russel, 240 A.D.2d 473 (2d Dep’t 1997). Defendant was not personally served and submitted to the Court, an affidavit of merit. Pursuant to CPLR 317 “the movant may apply to the court for relief only if he or she was served other than by personal service under CPLR 308(1).” Wells Fargo Bank v. Mondesir, 13 Misc. 3d 1210A; 824 N.Y.A. 2d 759 (Sup. Ct. 2006). If service is effected other than by personal delivery a court may still vacate a default judgment under CPLR 317, if it it is shown that the defendant did not have an opportunity to make its meritorious defense to the court due to the lack of knowledge of the action because of failure to be personally served.

For the foregoing reasons, Justice Minardo found that Plaintiff LaSalle Bank failed to properly serve defendant homeowner and that defendant homeowner had therefore been unable to bring forth its meritorious defenses. Plaintiff’s default judgment was vacated pursuant to CPLR 317 and the foreclosure action was dismissed in its entirety without prejudice.

Justice Minardo currently holds the position of Administrative Judge in the Thirteen Judicial District (Appointed by Chief Administrative Judge Ann Pfau). Previously Justice Mianrdo was the Administrative Judge to the Supreme Court of Richmond Country from 2005 to 2009 and was elected as a Supreme Court Justice for Richmond County from 1996 to 2009 and has been recently re-elected for 2010 through 2023. Justice Minardo also served as Special Counsel to State Senator John Marchi, 1988 to 1995 and Richmond County Assistant District Attorney from 1969 to 1976. Justice Minardo was also in private practice from 1976 to 1995. Minardo received his Bachelor of Arts from Manhattan College and his juris doctor from St. John’s University School of Law. He is admitted to the New York State Bar, the Appellate Division and Second Department.

“Government’s Push for Participants in Loan Modification Program Causes More Homeowners to Face Foreclosure”

By:  Kate Cavallaro
       Law Offices of Robert E. Brown, P.C.

An article from the Washington Post’s Associated Press cites that more than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. The article claims that the effort by the Obama administration to help people from losing their homes is falling short.  According to the article 150,000 homeowners have left the program.  Spokespersons for the program claim that despite the drop in participants in the program, those homeowners who are no longer part of the program will still find assistance from other places.  Perhaps these homeowners will find loan modifications or loan assistance from non governmental agencies.  “A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.”  Apparently the initial pressure to  have participants in the program caused some to fail to thoroughly determine if the homeowner is actually eligible for assistance via the government’s program.

NY Post “ Homeowners’ Hero Judge Slaps US Bank”

By Kate Cavallaro
     Law Offices of Robert E. Brown, P.C.

Brooklyn Judge, Arthur M. Schack, dismisses yet another foreclosure case brought by the offices of Steven Baum. Schack dismissed this particular foreclosure action “because the lawyer on the case, ... represented the mortgage broker, the bank that brought the loan and the industry registration service serving as the nominee of the loan.” Apparently the conflict of interest issues were not the only problems with this action. Additionally, Judge Schack “found that the bank, US Bank, never should have filed the foreclosure action because of an ‘ineffective assignment of the subject mortgage and note to it.” Also at issue in this case was the role of Baum lawyer, Elpiniki Bechhakas, who, according to the Post article “singed paper claiming to be an executive of Mortgage Electronic registration System (MERS),… while simultaneously representing Fremont and US Bank, which filed the foreclosure in July 2009.” The NY Post also reported the Baum’s “Buffalo based foreclosure mill” had filed 12,551 foreclosure actions in the New York area just last year.

“Access to Justice in Lending Act”

By:          Kate Cavallaro and Nicholas M. Moccia, Esq.

                Law Offices of Robert E. Brown P.C.

Just over a year ago, Section 282 was added to an act amending the Real Property Law.  This amendment is also known as enacting the “access to justice in lending act.”  Section 282 gives borrowers the right to recover attorney’s fees in actions or proceedings arising out of foreclosure of residential property.  The purpose of this bill is to allow borrowers in a foreclosure proceeding access to legal representation by providing that mortgage agreements which allow a prevailing lender to recover attorneys fees in a foreclosure proceeding shall be read to allow prevailing borrowers to recover attorneys fees as well, thereby enabling borrowers with meritorious defenses to foreclosure to obtain the legal representation necessary to assert those defenses, similar to the reciprocal attorneys fees rights given tenants by Real Property Law Section 234.

The notes on this section of the act provide that “any waiver of this section shall be void as against public policy.  For the purposes of the act, “residential real property” is real property improved by a one to four family residence, a condominium that is occupied b the mortgagor or a cooperative unit that is occupied by the mortgagor. 

Federal Natl. Mtge. Assn. v. Rogers Realty & Mgt. Corp., 2010 NY Slip Op 51072(U)(Kings County 2010)

By Kate Cavallaro
     Law Offices of Robert E. Brown, P.C.

In Federal Natl. Mtge. Assn. v. Rogers Realty & Mgt. Corp., 2010 NY Slip Op 51072(U)(Kings County 2010), the Supreme Court, Kings County, denied plaintiff’s motion for a default judgment insofar against defendants, Rogers Realty & Management Corp., in a foreclosure action. The defendants’ cross motions to dismiss plaintiff’s complaint pursuant to CPLR 3211(a)(8) and vacate their default pursuant to CPLR 317 or CPLR 5015 (a) (1) was granted to the extent that the complaint against individual defendant Abraham Hoffman is dismissed and denied. According to the plaintiff’s affidavits of service, service was purportedly made on Rogers Realty via the Secretary of State and upon individual defendant Hoffman by affixation and mailing. The Court notes that while CPLR 308(4) authorizes nail and mail service as to defendant Hoffman, it may only be utilized where personal service under CPLR 308(4) cannot be made with due diligence. The question in the instant matter revolves around the issue of what constituted due diligence, the existence of due diligence and whether the plaintiffs exercised it in attempting personal service. The court notes the “due diligence” is determined on a case by case basis, “focusing not on the quantity of the attempts at personal delivery, but on their quality.” Gurevitch v. Goodman, 269 AD2d 355 (2000). In the instant matter the affidavits cite six attempts to serve defendant Hoffman but that four of the six attempts were made at a time and date when it would be reasonable to assume that the defendant would be at work or traveling to and from work, and therefore not present at the residence where service was attempted. The Court further notes, (while there was discussion about the reporting of changes in business addresses were reported) that there “is no indication that the process server made any ‘effort to determine [Mr. Hoffman’s] business address in order to attempt personal service thereat pursuant to CPLR 308(2) before resorting to nail and mail service’.” Based on these affidavits of service and relevant case law the Court determined that Defendant Hoffman made a prima facie showing that there was a lack of “due diligence,” ineffective service, and a lack of jurisdiction over him. The Court found that “due diligence” on the part of the plaintiff to be insufficient as a matter of law, and therefore denied plaintiff’s request for a default judgment with respect to individual defendant Hoffman.

Judge Maltese denies Deustche Bank's motion for a judgment of foreclosure and sale in Richmond County

By Kate Cavallaro
     Law Offices of Robert E. Brown, P.C.

In Deutsche Bank National Trust v. Melancon, Index No. 102996/2008, Judge Maltese has ordered that plaintiff Deutsche Bank’s motion for judgment of foreclosure and sale be denied in its entirety, and with leave to renew upon the completion of discovery and granted Defendant homeowner extended time to serve an answer on the Plaintiff bank. Defendant homeowner is represented by the Law Office of Robert E. Brown. The order notes that the Plaintiff moved for a judgment of foreclosure and sale and that the Plaintiff failed to enter judgment within one year of the Defendant’s purported default pursuant to CPLR 3215(c). Accordingly, the Court notes that due to the failure to enter judgment within one year, the matter must be dismissed as abandoned. In this matter the Defendant opposed Plaintiff’s motion and cross-moved to dismiss the Plaintiff’s complaint and to deny the Plaintiff’s motion for a default judgment. The second branch of Defendant’s cross motion is designated as a motion to extend Defendant’s time to answer. In its decision, the Court states that it relied on the existence of a strong public policy to decide disputes based on the merits and further states that “given the fact that the Plaintiff waited nearly one year to move for a default against the Defendant, and has not demonstrated that it would suffer an prejudice if the Defendant is permitted to interpose a late answer, the Defendant shall be permitted to interpose an answer.”

Justice Maltese currently serves as a Supreme Court Justice for Richmond County, appointed in 1996. In 2002, he was appointed by Chief Administrative Judge, Jonathon Lipman, to serve as Associate Justice for the New York Litigation Coordinating Panel. Previous to these current positions, Justice Maltese served as a judge in the New York City Criminal Court, appointed by the Chief Administrative Judge from 1992 through 1995. He was also elected Judge for the New York City Civil Court for Richmond County from 1992 through 1996. Justice Maltese most recently received a Masters of Judicial Studies in 1995 from the University of Nevada. Justice Maltese also holds a Master of Arts and Master of Science, obtained from New York University in 1991 and Touro College in 2002, respectively. Justice Maltese earned a Bachelor of Arts degree in 1970 and a Juris Doctor in 1973 from New York Law School. In addition to holding several teaching and educational positions Justice Maltese is the author of Expert Testimony: Technical, Scientific & Other Specialized Evidence, NYS Bar Association, Torts, Insurance & Compensation Law Journal, Vol. 30, No. 2, Fall, 2001. Additionally, Joseph Maltese retired from the U.S. Army Reserve after more than 30 years of service in the active and reserve components where he served as an Armor Officer, an Intelligence Officer and as a member of the Judge Advocate General’s Corps. During his last seven years in JAG, he served as a military judge for the U.S. Army Trial Judiciary where he presided over active duty courts-martials in Germany, Panama and at several posts in the U.S. He is a graduate of the U.S. Air Force Air War College, the U.S. Army Command and General Staff College, as well as numerous courses at The Judge Advocate General’s School and The Armor School. After retiring from the U.S. Army Reserve he joined the New York Guard as a Colonel where he served as Staff Judge Advocate to the Commanding General. Joseph Maltese is currently a Brigadier General and the Commander of the 54th Civil Affairs Brigade, which has assisted with the mobilization of thousands of soldiers, sailors and marines who participated in Operation Enduring Freedom and Operation Iraqi Freedom.

The Lastest on New Financial Regulations in Congress

By Kate Cavallaro

                Congress is still negotiating over the terms and provisions of new financial regulations.  Lenders and the mortgage industry are making efforts to “soften a series of provisions that reshape how most Americans obtain home loans.”   As they are now, the proposed legislations would include new standards for underwriting, increasing lender responsibility, a change in the way loan originators are paid and new consumer rights to seek damages when mortgage payments become troublesome.  One way the bill induces the mortgage industry to take greater responsibility is by requiring lenders to retain a 5% stake in certain loans that are bundles with others. This required stake will increase the likelihood that the lenders will make sound loans.  Another example of a change in the industry standards is that the new legislation will require that lenders show that if a borrower refinances, the refinancing provides a “tangible benefit to the borrower.”  Lenders on the other hand are looking for ways to minimize the impact of this new proposed legislation.  For example, lenders want to limit the amount of time that borrowers can dispute a foreclosure actions if the borrower later discovers that their loan did not satisfy new standards.  As the bill stands now, it does not include a statue of limitations provision for those particular types of foreclosure claims.  Nick Timiraos writes that consumer advocate are noting that these legislative changes “will make it easier for borrowers to shop for loans and compare prices,” and that the “new provisions will shift the burden of proof from the consumers having to protect themselves from unreasonable fees to the providers of services justifying their costs.”

See Nick Timiraos’ article, “Mortgage Players Look to Soften Bill”, in today’s Wall Street Journal for more on this topic.

NY Foreclosure Jurisprudence, No. 1: Orders of Reference Denied for Failure to Comply with CPLR 3215(f)

By Nicholas M. Moccia, Esq., and Kate Cavallaro
     Law Offices of Robert E. Brown, P.C.

This post is the first of a series of many which will attempt to explore some of developments of in New York foreclosure jurisprudence in response to the foreclosure crisis. In this first post, we will attempt to make a modest start by reviewing the following three decision rendered by Justice Arthur Schack of Kings County in 2008.

Deutsche Bank National v. Auguste, NY Slip Op 31991(U)(Kings County 2008)

Deutsche Bank National v. Harris, NY Slip Op 30308(U)(Kings County 2008)

Countrywide Home Loans v. Persaud, NY Slip Op 30076(U)(Kings County 2008)

The common theme in these three cases is the Court’s denial, sua sponte, of the foreclosure plaintiff’s application for an order of reference on default. In brief, a foreclosure plaintiff’s application for an order of reference is a preliminary step to obtaining a judgment of foreclosure and sale. Specifically, the plaintiff asks the court to appoint a “referee” for the purpose of, among other things, computing the exact among owed by the foreclosure defendant/borrower.

In the above-listed cases, Justice Schack denied each of the plaintiffs’ applications for an order of reference due to the failure to comply with CPLR 3215(f). In each of these cases, the defendants neglected to answer or contest the foreclosure action, and so the plaintiffs were attempting to obtain judgments of foreclosure and sale on default pursuant to CPLR 3215. The proof need on an application for a default judgment is governed by CPLR 3215(f), whose requirements are three:

1. proof of summons service including a complaint;

2. proof of the claim, including the amount due;

3. proof of the defendant’s default in answering

Specifically, it is the foreclosure plaintiff’s failure to comply with the second requirement that is here at issue. The second requirement, proof of the claim itself, is usually satisfied by the submission of an “affidavit of merit” from the plaintiff or a representative of the plaintiff with first-hand knowledge of the relevant information underlying the claim. The foreclosure complaint itself may also satisfy this requirement if the complaint was verified by an individual with the requisite knowledge. An affidavit from an attorney, or a complaint verified by an attorney is generally unacceptable for this purpose. In the foreclosure context, an affidavit is usually supplied by a “vice president”, “authorized signatory”, “foreclosure technician” or some other dubiously titled “officer” of the foreclosing plaintiff.

Justice Schack has rightfully made practice of denying applications for orders of reference in situations where, to put it simply, he needs “more answers.” Justice Schack has been asking the tough questions that like, for instance, “Why, in the midst of the country’s mortgage crisis is Deutsche Bank purchasing non performing loans? And who’s been signing these affidavits of merit?” Justice Schack notes that the affidavits of merit are scarcely ever by an actually officer of the plaintiff or someone with a valid power of attorney from the plaintiff. See, e.g., Deutsche Bank National v. Auguste. In Deutsche Bank National v. Harris, Schack denied Deutsche Bank’s application for an order of reference due to his suspicions about particular employee, who has claimed at various times to be the Vice President of Deutsche Bank and Vice President of IndyMac. In cases where supporting affidavits were executed by persons who appear to have possible conflict of interest, even assuming arguendo their positions are legitimate, Justice Schack has ordered affidavits outlining the employment history of certain individuals for the proceeding three years. Again, in Deutsche Bank National v. Harris, Schack was perplexed to discover that IndyMac, MERs and plaintiff Deutsche bank all appeared to share the same office space. In Countrywide Home Loans v. Persaud, Schack ordered an explanation as to why Countrywide would purchase a nonperforming loan from MERS. To be sure, it is not at all uncommon to have nonperforming loan assigned inexplicably to different financial institutions on the eve of foreclosure.

While it is true that these cases were denied without prejudice, the plaintiffs were still required to cure these procedural defects to the satisfaction of the Court. Bottom line: foreclosure defendants, and the practitioners representing them, should carefully scrutinize affidavits of merit in order to ensure that they do indeed have merit.

“Lawmakers reach Consensus on Key Mortgage Reforms”

By Kate Cavallaro

The House and the Senate are working on legislation which attempts to reform certain mortgage industry practices. The final draft of the bill is expected to be complete in early July 2010.  The final bill will incorporate a number of changes and even outlaws certain industry practices.  For instance, the bill will require mortgage lenders to adhere to a “net tangible benefit underwriting standard” which is intended to ensure that lenders make loans that benefit consumer borrowers.  Moreover, the bill requires that all “mortgage originators, including brokers and loan officers, be appropriately registered when selling mortgages, and that they designate their home loans with unique mortgage registry identifiers.”  In addition, the bill imposes that “mortgage compensation can only be financed if all originator compensation is paid by the borrower, not third parties.”  This legislation will also give the Consumer Financial Protection Bureau the authority to define a “qualified mortgage”—i.e., loans that can be purchased by federal agencies.  Finally, the new legislation will also incorporate provisions that subject mortgage originators—both individual loan officers and brokers—to sanctions if these originators are “not properly registered, violate compensation restrictions, or steer borrower into unsustainable loans.”

Bank of New York v. Bestbuydigital, Inc.

By:   Kate Cavallaro

Defendant moves to vacate default due to excusable default/meritorious defense, lack of jurisdiction and meritorious defense and failure to receive notice in time to defend. The Court in this matter denied all motions and all stays were vacated and lifted. Additionally the defendant alleged that proof of service was not filed as required by CPLR § 308(2), but offered no proof in support of this contention. Defendant relied solely on his failure to receive process in order to argue his excusable default. The Court cites Maldonado v. County of Suffolk, 229 AD 2d 376 (2d Dept. 1996), stating that “an affidavit of service by a process server which specified the papers served, the person who was served, and the date, time, address and sets forth facts showing that service was made by an authorized person, and in an authorized manner, constituted prima facie evidence of proper service.” Further, the Court notes that “a conclusory denial of receipt … is insufficient to raise an issue of fact which would entitle defendant to a traverse hearing.” The Court states that the defendant did not meet his burden of showing a meritorious defense—i.e. some minimal showing of merit. Had the defendant offered any additional showing of proof or supplied his argument in the form of an affidavit, a sworn statement, then perhaps the Defendant would have rebutted the presumption created by the process server’s affidavit of service. Due to defendant’s failure to meet his burden of proof and his failure to supply any evidence beyond a conclusory denial, the Court denied defendant’s motion to vacate the foreclosure judgment and vacated all stays.

Flushing Sav. Bank v. Ataraxis Props. Ltd.

By:  Kate Cavallaro

In Flushing Sav. Bank v. Ataraxis Props. Ltd., a foreclosure action was commenced on Oct. 5 2009 after Ataraxis defaulted on its loan payments due on May 1, 2009.  The principal balance of the loan was $600,000.00.  This opinion clearly articulates the plaintiff’s burden of proof and the burden shifting on the defendant that occurs in a motion for summary judgment in a foreclosure action.  In this matter, the plaintiff moved for summary judgment and an order of reference appointing a referee in addition to other procedural claims.  The court states that in order to establish prima facie entitlement to summary judgment in a foreclosure action, “ a plaintiff must submit the mortgage and unpaid note, along with evidence of default”, citing Capstone Business Credit, LLC v. Imperia Family Realty, LLC, 70 AD3d 882, 883, 895 NYS2d 199 [2d Dept 2010]).  Once the plaintiff has supplied such proof, the burden then shifts to the defendant.  At this juncture it is required that the defendant “demonstrate the existence of a triable issue of fact as to a bona fide defense to the action, such as waiver, estoppel, bad faith, fraud, or oppressive or unconscionable conduct n the part of the plaintiff” (id. quoting Mahopac Natl. Bank v. Bisley, 244 AD2d 466, 664 NS2d 345 [2d Dept 1997]).  In this particular matter, Flushing Savings Bank has met its initial burden by supplying the required documents proving its prima facie entitlement to summary judgment.  In attempting to meet its burden, the defendant argues that it is unable to fully and completely respond due to the plaintiff’s failure to comply with the defendant’s discovery demands. Defendant also cites the pendency of another action between itself and the real estate broker involved in the same transaction.  Defendant contends that the motion for summary judgment on behalf of plaintiff in premature in light of the forgoing arguments.  The Court states the plaintiffs motion for summary judgment is not premature “inasmuch as Atarxis and Biskup (Defendants) have failed to offer an evidentiary basis to suggest that discovery may lead to relevant evidence; their hope and speculation that evidence sufficient to defeat the motion might be uncovered during discovery is an insufficient basis for denying the motion.” Therefore, the court granted plaintiff’s motion for summary judgment.Bank of New York v. Bestbuydigital, Inc.

Defendant moves to vacate default due to excusable default/meritorious defense, lack of jurisdiction and meritorious defense and failure to receive notice in time to defend.  The Court in this matter denied all motions and all stays were vacated and lifted.  Additionally the defendant alleged that proof of service was not filed as required by CPLR § 308(2), but offered no proof in support of this contention.  Defendant relied solely on his failure to receive process in order to argue his excusable default.  The Court cites Maldonado v. County of Suffolk, 229 AD 2d 376 (2d Dept. 1996), stating that “an affidavit of service by a process server which specified the papers served, the person who was served, and the date, time, address and sets forth facts showing that service was made by an authorized person, and in an authorized manner, constituted prima facie evidence of proper service.”  Further, the Court notes that “a conclusory denial of receipt … is insufficient to raise an issue of fact which would entitle defendant to a traverse hearing.”  The Court states that the defendant did not meet his burden of showing a meritorious defense—i.e. some minimal showing of merit.  Had the defendant offered any additional showing of proof or supplied his argument in the form of an affidavit, a sworn statement, then perhaps the Defendant would have rebutted the presumption created by the process server’s affidavit of service.   Due to defendant’s failure to meet his burden of proof and his failure to supply any evidence beyond a conslusory denial, the Court denied defendant’s motion to vacate the foreclosure judgment and vacated all stays. 

Upstate judge puts condo common charge arrearage in first position

By:  Kate Cavallaro

In an Orange County, New York, action to foreclose a mortgage on an unoccupied residential condominium unit, Judge Bartlett granted interlocutory relief to the defendant Board of Mangers of the condominium boars (“Board”). The relief sought by the Board was the appointment of a receiver of the unit in question with directions that the receiver rent the unit and apply the proceeds of the rental first to the payment of current common charges and then to the reduction of the mortgage.    Plaintiff, U.S. Bank National Association (“Bank”) opposed the application claiming that the proceeds should first be applied to the mortgage and that any remaining funds should then be applied to common charges and junior liens.  The court notes that CPLR § 6401 permits the appointment of a receiver to an applicant when the applicant has an apparent interest in the property at issue and the property is in danger of being lost, destroyed or materially injured.  Further, the Court notes that as a junior lienor the Board, has an interest in the property and therefore has the necessary standing to apply for a receiver in a foreclosure action.  The point at issue in this matter is whether the cost of the condominium common charges that are accruing while a foreclosure action is pending can be paid without first applying the rents to the reduction of the first mortgage.  The Court states that in determining whether to provide for the payment of condominium common charges from rents while a mortgage foreclosure action is preceding it must consider two factors. First, the “prejudice, if any to be suffered by the holder of the first mortgage, and” secondly, “how to balance that against the harm being suffered by the Board which is being compelled to carry the cost of maintaining the unit during pendency of this action.”  In weighing these considerations the Court concluded that payment of common charges is “consistent with the receiver’s obligation to preserve the premises under RPAPL § 125(2).”  Due to the “inter-relationship a condominium unit has with the common areas of the building and the building structure as a whole” the payment of the common charges help sustain the individual unit and if these charges remain unpaid the market value of the unit would decline.  “By seeking the appointment of a receiver the Board is preserving the asset by maintaining the building in which the unit is located. The consequences of the bank’s position would work an injustice and sanction economic waste.” The Court states that “it is in the interests of all parties that unnecessary unpaid common charges not accrue.”  In granting the Boards application the Court did add that the Board is to settle on an order on notice that would specify the limitations on the receiver’s authority to collect rents and monies. 

Utah judge stays all foreclosure actions brought by Bank of America in Utah

By:  Kate Cavallaro

A Utah judge has ordered a preliminary injunction against all foreclosure sales in the State of Utah by Bank of America Corporation. The temporary injunction was granted based on claims that the bank is not properly registered to do business in the state. The order bars Bank of America and its subsidiaries, like Recon Trust, from engaging in foreclosure sales in Utah until it is determined if the institutions are legally registered with the Utah Division of Corporations. Bank of America has filed to have the injunction rescinded. An emergency motion has been filed in Federal court. A Bank of America spokesperson has said that since the companies are governed by federal law, not state law, the defendants in this action had no opportunity to make their argument before the Utah state order was issued. Bank of America has halted residential foreclosure sales in the Utah State in order to comply with the injunction. A local newspaper reported that the Utah Department of Commerce Corporation division has no record of Recon Trust being registered as a business entity in Utah.

Bank of America to Pay Homeowners $108 Million in FTC Countrywide Settlement - Denise Richardson

WASHINGTON — The Federal Trade Commission announced Monday that two Countrywide mortgage servicing companies had agreed to pay $108 million to settle charges that they collected excessive fees from financially troubled homeowners.

The $108 million payment is one of the largest overall judgments in the commission’s history and resolves its largest mortgage servicing case. The money will go to more than 200,000 homeowners whose loans were serviced by Countrywide before July 2008, when it was acquired by Bank of America.

Jon Leibowitz, the chairman of the Federal Trade Commission, said that Countrywide’s loan servicing operation charged excessive fees to homeowners who were behind on their mortgage payments, in some cases asserting that customers were in default when they were not.

The fees, which were billed as the cost of services like property inspections and lawn mowing, were grossly inflated after Countrywide created subsidiaries to hire vendors to supply the services, increasing the cost several-fold in the process, the commission said.

By EDWARD WYATT
Published: June 7, 2010

In addition, the commission said that Countrywide at times imposed a new round of fees on homeowners who had recently emerged from bankruptcy protection, sometimes threatening the consumers with a new foreclosure.

“Countrywide profited from making risky loans to homeowners during the boom years, and then profited again when the loans failed,” Mr. Leibowitz said.

The $108 million settlement represents the agency’s estimate of consumer losses, but does not include a penalty, which the commission is not allowed to impose.

Clifford J. White III, the director of the executive office for the United States Trustees Program, which enforces bankruptcy laws for the Department of Justice, said that the commission’s settlement “will help prevent future harm to homeowners in dire financial straits who legitimately seek bankruptcy protection.”

The settlement bars Countrywide from making false representations about amounts owed by homeowners, from charging fees for services that are not authorized by loan agreements, and from charging unreasonable amounts for work.

In addition, the settlement requires Countrywide to establish internal procedures and an independent third party to verify that bills and claims filed in bankruptcy court are valid.

“Now more than ever, companies that service consumers’ mortgages need to do so in an honest and fair way,” Mr. Leibowitz said.

The F.T.C. has not yet established how much will be paid to each consumer, in part, Mr. Leibowitz said, because Countrywide’s record keeping was “abysmal.” About $35 million of the $108 million total was charged to homeowners already in bankruptcy proceedings, with the remainder charged to customers whom Countrywide said were in default on their mortgages.