Category Archives: investment banks

The Wizard Behind the Curtain

Posted on February 10th, 2012 by Mark Stopa

Through my experience litigating foreclosure cases, I’ve become convinced that the plaintiffs prosecuting foreclosure lawsuits often don’t even realize those lawsuits are pending.  Let’s say that again: 

The Plaintiffs who have filed suit don’t even realize a lawsuit is pending.

How can that be?  Simple.  Third-party servicers retain a foreclosure mill, a.k.a. a plaintiff’s lawyer, and, without actually appearing as a party in their own names, direct the foreclosure mill to file suit on behalf of the plaintiff, i.e. the owner of the Note and Mortgage.  Does the servicer actually have authority to do so?  Honestly, who the heck knows.  This strange phenomenon is something I’ve started to call the “Wizard Behind the Curtain.”  The servicer isn’t named in the lawsuit, but it’s the one behind the scenes, calling all the shots, directing the foreclosure of thousands of homes throughout America. 

I see a myriad of problems with this.  In fact, just last month, I expressed my concerns when I saw a foreclosure mill’s written admission that it had no relationship whatsoever with the plaintiff it was purporting to represent.  Think about that for a second:

The lawyer had no relationship whatsoever with the plaintiff it purported to represent.

Instead, the firm’s alleged authority to file the foreclosure lawsuit came from, you guessed it, the “servicer.” 

I recently came across a document filed in a court case that sheds more light on this troubling phenomenon, and this document will provide a useful example to illustrate the problem. 

Take a look for yourself … what do you see?

Obviously this document, which Shapiro & Fishman calls a “Non-Title Document Review,” is a checklist used prior to filing a foreclosure complaint.  What really strikes me about this document (which Shapiro filed with the Complaint in this case and is a matter of public record) is that it has one box for the “Plaintiff” and the heading/style of the case, and an entirely separate box for the “Client.”  Here, for instance, the “Plaintiff” is U.S. Bank, National Association, but the “client” is “Bank of America, N.A.” 

Call me crazy, but shouldn’t the “client” and the “plaintiff” be the same?  How can Shapiro & Fishman be filing a lawsuit on behalf of U.S. Bank when its “client” is Bank of America? 

This may sound technical, and perhaps it is.  But think about how this “wizard behind the curtain” phenomenon will play out in a foreclosure case.  I see four huge problems.

First, the Florida Supreme Court requires via Fla.R.Civ.P. 1.110(b) that the Plaintiff verify its Complaint in all residential foreclosure cases.  Given the relationship between the foreclosure mills and the servicers, it seems clear the required verifications aren’t being done by the plaintiffs, but by the servicers.  Many learned judges in Florida before whom I appear have made it clear that verification by a servicer is insufficient – the complaints are supposed to be verified by the “plaintiff.”  Remember, the Rule doesn’t permit verification by a third party, but by “the plaintiff.”  In fact, Shapiro & Fishman moved for rehearing of the Florida Supreme Court’s ruling on this precise issue, and the Court rejected its motion. 

This prompts a significant question – if verification is required by the plaintiff, and the attorneys representing the plaintiff have no relationship with the plaintiff, how on earth can they get the required verification?  Undoubtedly, this is why the mills ask for 90 days or 120 days to get the requisite verification (when complaints are dismissed with leave to amend), as they often don’t even represent the plaintiff prosecuting the foreclosure case!  Literally, the mills are in the position of calling up an entity who they don’t represent and saying “You don’t know me, but I’m representing you in this foreclosure case, and I need you to verify under penalty of perjury that the allegations we’ve raised are correct.” 

A bit awkward, eh?  Yet that’s the position in which the mills have put themselves (in a large percentage of foreclosure cases in Florida). 

Second, I struggle to see how the mills can prosecute lawsuits on behalf of plaintiffs without the plaintiffs’ knowledge or consent in a manner consistent with The Rules Regulating The Florida Bar.  I’ve spoken with the Bar on this, and given our conversation, I’m not prepared to say it’s impossible, but I will say this.  Personally, I couldn’t imagine appearing as counsel for a party in any lawsuit without that party’s knowledge or consent, much less doing so on a widespread, systematic basis. 

Think about it this way.  An attorney is able to act on behalf of a client because the attorney’s actions bind the client.  Stipulations, representations, court filings, etc. … we as attorneys are, quite literally, agents for our clients.  If a client is going to be bound in this manner, the attorney’s authority to represent/bind the client must be clearly established.  This is why, for example, there are strict rules about how an attorney may appear as counsel, failing which the attorney’s actions don’t bind the client.  See Pasco County v. Quail Hollow Props., Inc., 693 So. 2d 92 (Fla. 2d DCA 1997). 

If these foreclosure attorneys don’t have an attorney-client relationship with the plaintiff, it seems to me they cannot represent the plaintiff at all and should be disqualified from doing so.  After all, how can an attorney bind the plaintiff when the attorney has no relationship with the plaintiff?  Why should any court accept the representations or stipulations of a plaintiff’s attorney when that attorney has no relationship with the plaintiff? 

There must be a better answer than “there are lots of foreclosure cases in Florida, and this is just how it’s done.” 

Third, you want to know why the Florida Supreme Court’s mediation program failed?  How can anyone expect to get a binding agreement with U.S. Bank when the attorneys prosecuting this foreclosure case don’t even represent U.S. Bank?  Remember, Shapiro & Fishman’s client is Bank of America, so the contact person for Shapiro & Fishman on this file is undoubtedly an agent of Bank of America, not U.S. Bank.  Again, how can anyone expect to get a loan modification under these circumstances, i.e. the appropriate parties aren’t even at the bargaining table. 

Fourth, when the plaintiff alleges in the complaint that it is the owner and holder of the Note and Mortgage, what exactly does that mean?  Taking plaintiff’s allegations literally, the plaintiff is the owner/holder.  But in all of these cases where the entity driving the suit is actually the servicer, it seems that the servicer is the “holder” of the Note, not the Plaintiff.  Remember, to be the holder, the “plaintiff” must be in “possession” of the Note.  See Fla. Stat. 671.201(21).  However, are these plaintiffs really in possession when they don’t even know a case has been filed?  I suppose it’s possible, but when the Note is subsequently put into the court file, how did it get there?  If it’s from the servicer, as I’d think it must since the servicer is the only one who knows about the case, then doesn’t that show the servicer was in possession, not the Plaintiff? And that the servicer was the “holder,” not the Plaintiff?  Actually, no – where the Note is specifically indorsed to the plaintiff, the servicer isn’t the holder, either.  In that situation, the servicer has possession, but the plaintiff has the indorsement, so neither one is the “holder.” 

So what’s the solution to all of this madness?  It’s two-fold: (1) Require verifications by the plaintiff (not the servicer, the plaintiff) and dismiss all cases without it; and (2) Require the foreclosure mills to have attorney-client relationships with the plaintiff (not the servicer, the plaintiff prosecuting the case) and disqualify all attorneys who lack such a relationship.  That sounds harsh, but it’s ridiculous to inundate our courts with garbage pleadings that languish for years without a resolution when the parties prosecuting them don’t even know they’ve been filed.

Mark Stopa


Charles
Charles Wayne Cox – Oregon State Director for the National Homeowners Cooperative
Email: mailto:Charles@BayLiving.com
Websites: http://www.NHCwest.com; www.BayLiving.com; and www.ForensicLoanAnalyst.com
1969 Camellia Ave.
Medford, OR 97504-5403
(541) 727-2240 direct
(541) 610-1931 eFax

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American Banker | Other sources who spoke with American Banker raised doubts that everything is yet in place. A person familiar with the mortgage servicing pact says that a settlement term sheet does not yet exist.‏

FEB 10, 2012 1:07pm ET

More than a day after the announcement of a mammoth national mortgage servicing settlement, the actual terms of the deal still aren’t public. The website created for the national settlement lists the document as “coming soon.”

That’s because a fully authorized, legally binding deal has not been inked yet.

The implication of this is hard to say. Spokespersons for both the Iowa attorney general’s office and the Department of Justice both told American Banker that the actual settlement will not be made public until it is submitted to a court. A representative for the North Carolina attorney general downplayed the significance of the document’s non-final status, saying that the terms were already fixed.

“Once the documents are finalized, they’ll be posted to nationalmortgagesettlement.com,” the representative said in an email to American Banker.

Other sources who spoke with American Banker raised doubts that everything is yet in place. A person familiar with the mortgage servicing pact says that a settlement term sheet does not yet exist. Instead, there are a series of nearly-complete documents that will be attached to a consent judgment eventually filed with the court. That truly final version will include things such as servicing standards, consumer relief options, legal releases, and enforcement terms. There will likely be separate state and a federal versions of the release.

Some who talked to American Banker said that the political pressure to announce the settlement drove the timing, in effect putting the press release cart in front of the settlement horse.

Whatever the reason for the document’s continued non-appearance, the lack of a public final settlement is already the cause for disgruntlement among those who closely follow the banking industry. Quite simply, the actual terms of a settlement matter.

“The devil’s in the details,” says Ron Glancz, chairman of law firm Venable LLP’s Financial Services Group. “Until you see the document you’re never quite sure what your rights are.”

“It’s frustrating,” agrees Stern Agee analyst John Nadel. “But it’s not unlike anything else that’s been going on in financial reform generally, is it?”

Should the settlement still have loose strings, yesterday’s frenzy over the completion of the settlement may have been premature. The announced deal launched a countless press releases and wall to wall news coverage. But few news outlets asked for the document, and those that did (including American Banker) have been unsuccessful.

“It is hard for me to believe that they would have gone public in the way that they did if they didn’t have it all worked out. But it is unusual that we don’t have a copy of the settlement yet,” says Diane Thompson, an attorney for the National Consumer Law Center.

American Banker asked The Department of Justice, the Department of Housing and Urban Development, and the offices of Attorneys General in Iowa, North Carolina and Colorado for a copy of the settlement last night. Only Iowa, North Carolina and the Department of Justice have responded, saying that the document would not be available until it is filed with the court on a yet-undetermined date.

And there is plenty more still to be worked out under all circumstances.

“Even once we get to the final terms, the servicers we’re told are going to be allowed to develop their own plans,” says NCLC’s Thompson. “They’re going to have three months to develop those from when the settlement is approved by the court. We are a long way in lots of ways from being able to kick the tires.”


Oakland OWS Update -from the ground in Oakland

From: charles@bayliving.com
To: charles@bayliving.com
Subject: Oakland OWS Update -from the ground in Oakland
Date: Thu, 5 Jan 2012 13:40:12 -0800

Charles,

 

The police department and DA’s office are really stepping it up.  People are planning to do a sit in at the mayor’s office this afternoon at 2 pm. Here is the comment/release I received, please forward widely to your network.

 

 

“Tonight, the OPD, assumedly backed by the city, acted with such complete disregard for the law that our immediate action is required in protest. At about 11pm, Sri Louise and I were at the Interfaith Umbrella on Frank Ogawa Plaza, making political signs and keeping an eye on a sweet puppy named Jasmine. Others around us were gathered in small clusters talking, using computers at a new power station someone had rigged up, and eating food some of us brought to share. There were maybe 50 or 60 people total. .It was all so peaceful and beautiful, and then the cry went out: “Riot Police! Watch out!” Sure enough, more than a dozen cruisers had pulled up at high speed and were now disgorging scores of police in riot gear, who immediately began advancing on us with no order to disperse, no warning, and no explanation of what they were doing. One protester, Sven La Rose, stepped forward and began to speak to the police about what they were doing. They had him on the ground in seconds and immediately handcuffed him. Meanwhile, I was nearly taken as I stopped to grab the blankets we had at the umbrella. Several police were advancing on me, forcing me forward and telling me to move or be arrested. Meanwhile, Sri was shouting for help moving a man who was drunk and asleep and who had a dog with him. We did get him up and out of harm’s way, but fourteen of our people were taken in all, including two who actually had left the scene and crossed the street to avoid arrest, and who were arrested by cops who deliberately broke away and went after them as targets. (Both are African American men who have demonstrated leadership in two different areas of the movement.) An attorney then appeared on the scene and offered to go with us to the jail to try to get people out, since they had clearly been arrested without the police following legal procedure. We marched there but were prevented from getting there by a line of police advancing on us and yelling for us to “Get back.” The attorney, Sri, several other witnesses and I then went around the corner to the public entrance to the jail lobby, which we entered. Immediately someone started saying over a PA that we were trespassing and needed to leave or be arrested. Meanwhile, someone opened the opposite door, and a group of protesters entered, and then several dozen sherriff’s deputies came out and told us we had ten seconds to choose one representative and get out. They then advanced on us while counting backward from ten, and we chose the attorney (who was lovely–I will get her name) and stood outside videotaping her through the glass. The deputies told her very aggressively to leave and go to the police station across the street where our people were being held. We did that, but the police station told us they had no holding facilities and that we should go back to the jail. It was a classic run-around consisting of blatant lies to an attorney who was trying to represent clients.

This action tonight is the most serious violation of first amendment rights I have ever seen. It is mind-boggling. We were doing nothing wrong. We were simply present in a public square as part of a movement that is being targeted for repression. We have to respond and respond with clarity of purpose and intent.

Please invite your clergy colleagues, right now, to join you at 2pm at the plaza. We propose to erect the canopy and then go into city hall to occupy the mayor’s and city administrator’s offices. I know this is short notice and that many of you haven’t been spending time at the plaza, nor do you know the people impacted by this. I don’t know how to say to you how upsetting and urgent this is. These people have done nothing wrong. They are political prisoners currently being held without charge. We must demand their release and the release of all Occupy Oakland political prisoners and an end to the police harassment of peaceful protesters.

Sri and I will lead an action with whoever will come with us. If you come, wonderful. If not, that’s fine, too. There will be a risk of arrest, of course, although an order to disperse should be given before arrests are made. I plan to use the nonviolence pledge to develop a set of requests we will ask protesters to agree to, including nonviolence and a spirit of love rather than revenge.

I am very sorry about the short notice, but next week is too late, and if we wait until Friday, we are likely to spend all weekend in jail.

It would be a great asset to have many members of the faith community present, but we will go with whoever is willing to go with us. Please wear clergy collars or other religious garb if you have it.

Thanks.”


Charles
Charles Wayne Cox – Oregon State Director for the National Homeowners Cooperative
Email: mailto:Charles@BayLiving.com
Websites: http://www.NHCwest.com; www.BayLiving.com; and www.ForensicLoanAnalyst.com
1969 Camellia Ave.
Medford, OR 97504-5403
(541) 727-2240 direct
(541) 610-1931 eFax

Description: Description: Description: cid:image001.jpg@01CC3E40.AB921B50  Description: Description: http://www.nhclawgroup.com/images/NAMU.png

            MERScurse   Protect America’s Dream

              The LEGAL Group   PRO-NETWORK

                    JOIN NHC, IT’S FREE

Paralegal; CA Licensed Real Estate Broker; Certified Forensic Loan Analyst.  Litigation Support; Mortgage and Real Estate Expert Witness Services.
________________________________________________________________________
DISCLOSURE: I AM NOT AN ATTORNEY AND NOTHING IN THIS EMAIL SHALL BE CONSIDERED OR CONSTRUED AS LEGAL ADVICE.  I am a California Business and Professions Code § 6450 qualified paralegal and only work as a paralegal when employed by an attorney or law firm. I am also a licensed California Real Estate Broker #01217620.  My license expires 10/09/2013. As a real estate broker, I am qualified to advise on real estate but I do not offer legal advice. If you have any questions concerning the legal sufficiency, legal effect, insurance, or tax consequences regarding any real estate or other matter, consult with your attorney, accountant, insurance agent, tax or other appropriate professional.

CONFIDENTIALITY NOTICE: This e-mail message, including any attachments, is for the sole use of the intended recipient(s) and may contain confidential and privileged information.  Any unauthorized review, use, disclosure or distribution is prohibited.  If you are not the intended recipient, please contact the sender by reply e-mail and destroy all copies of, and the original message.  Thank you.

Charles


IMPORTANT – California court holds the business judgment rule does not protect corporate officers in California‏

IMPORTANT – California court holds the business judgment rule does not protect corporate officers in California‏.


IMPORTANT – California court holds the business judgment rule does not protect corporate officers in California‏

California court holds the business judgment rule does not protect corporate officers in California
The business judgment rule is a longstanding corporate law principle that shields corporate directors from personal liability for their business decisions, even if the decisions lead to bad results, so long as the decisions are made in good faith, and with reasonable care and diligence. The business judgment rule recognizes the realities of business by not requiring directors to be liable for every business risk they take, or substituting a court’s judgment for that of a director.

Lawyers have generally believed that the protection of the business judgment rule extends to corporate officers as well as directors. However, a recent federal district court decision held that under California law, the business judgment rule does not insulate officers from liability for their mistaken decisions.

In Federal Deposit Insurance Corporation v. Perry , C.D. Cal., No. CV 11-5561 ODW (MRWx), December 13, 2011, IndyMac CEO Michael Perry was denied the protection of the business judgment rule in an action brought against him in his capacity as CEO. Mr. Perry moved to dismiss the FDIC’s claims that he negligently permitted the sale of US$10 billion in “risky” residential loans to the secondary market, arguing that the business judgment rule applied. The court disagreed, basing its decision on (1) the fact that California’s codified business judgment rule refers only to directors and not officers, (2) the existence of California legislative history that indicates omission of officers from the statute was intentional and (3) the absence of any direct California precedent holding that the business judgment rule protects officers as well as directors. One concept underlying this decision is the rationale that directors may rely on information received from corporate officers in making business decisions, while officers are closer to the business data and information on which decisions are based and therefore may be held to a higher standard of care.

This decision is significant to all corporate officers doing business in California (including corporate officers of out-of- state corporations doing business in the state), and may expose such individuals to lawsuits and liability for claims that they failed in their duties.

——————————————————————————–

Charles
Charles Wayne Cox – Oregon State Director for the National Homeowners Cooperative
Email: mailto:Charles@BayLiving.com
Websites: http://www.NHCwest.com; http://www.BayLiving.com; and http://www.ForensicLoanAnalyst.com
1969 Camellia Ave.
Medford, OR 97504-5403
(541) 727-2240 direct
(541) 610-1931 eFax


Bank of America working hard to screw Americans!‏

http://mattweidnerlaw.com/blog/2012/01/outrage-watch-bank-of-americayour-government-hard-at-work-screwing-americans/

http://www2.tbo.com/news/2012/jan/02/largo-man-nearly-loses-his-home-85236-vi-25544/?referer=http://www.facebook.com/l.php?u=http%3A%2F%2Ftbo.com%2Fvi%2F25544%2F&h=OAQEz9GT7AQEN3PLx_bkEKgjHdsC7EiImJsDv53lZ-3DJ9g&shorturl=http://tbo.ly/u3zmJI

Video.

(by the way, if you believe what they told him in the first place…I’ve got a bridge to sell you)

Charles
Charles Wayne Cox – Oregon State Director for the National Homeowners Cooperative
Email: mailto:Charles@BayLiving.com
Websites: http://www.NHCwest.com; http://www.BayLiving.com; and http://www.ForensicLoanAnalyst.com
1969 Camellia Ave.
Medford, OR 97504-5403
(541) 727-2240 direct
(541) 610-1931 eFax

NR 2012-1

FOR IMMEDIATE RELEASE
January 4, 2012
Contact: Bryan Hubbard
(202) 874-5770

OCC Releases Public Service Ads About the Independent Foreclosure Review
WASHINGTON — The Office of the Comptroller of the Currency today released print and radio public service advertisements to increase awareness of the Independent Foreclosure Review, announced in November 2011.

The public service items include a feature story, distributed to 7,000 small newspapers throughout the country, and two 30-second radio spots distributed to 6,500 small radio stations. The material will be distributed in English and Spanish. Below is the text of the feature story for use:

Your Independent Foreclosure Review
Did you face foreclosure in 2009 or 2010? If so, the Office of the Comptroller of the Currency says you may be eligible for a free independent review of your case.

Independent foreclosure reviews let borrowers who faced foreclosure on their primary residences between January 1, 2009 and December 31, 2010 request reviews of their cases if they believe they suffered financial injury as a result of errors in the foreclosure processes of these servicers: America’s Servicing Company, Aurora Loan Services, Bank of America, Beneficial, Chase,Citibank, CitiFinancial, Citi Mortgage, Country-Wide, EMC, EverBank/Everhome, Freedom Financial, GMAC Mortgage, HFC, HSBC, IndyMac Mortgage Services, MetLife Bank, National City, PNC Mortgage, Sovereign Bank, Sun-Trust Mortgage, U.S. Bank, Wachovia, Washington Mutual, and Wells Fargo.

The reviews will determine whether individuals suffered financial injury and should receive compensation or other remedies due to errors or other problems during their home foreclosure process. The reviews were ordered by the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve in April 2011 after the federal regulators found unsafe and unsound mortgage servicing and foreclosure practices among these large, federally regulated mortgage servicers.

Situations that may have led to financial injury include, but are not limited to:

· The mortgage balance at the time of the foreclosure action was more than you actually owed.

· Fees charged or mortgage payments were inaccurately calculated, processed or applied.

· You were doing everything a modification agreement required but the foreclosure sale still happened.

· The foreclosure action occurred while you were protected by bankruptcy.

· A foreclosure proceeded on a military member in violation of Servicemembers Civil Relief Act protections.

More than 4 million letters were mailed to potentially eligible borrowers with request-for-review forms and instructions on how to complete and return them. The form lets you describe what you think went wrong. Simply answer the questions to tell your story, include any additional documents you think relevant and return the form by April 30, 2012.

If you believe you are eligible and have not received a form, you can request one from (888) 952-9105, Monday through Friday from 8 a.m. to 10 p.m. (ET) and Saturday from 8 a.m. to 5 p.m. (ET).

For additional information and answers to basic questions about the review process, visit http://www.IndependentForeclosureReview.com. Reviews are conducted by independent consultants working under the direction of the federal regulators and may take several months to complete.

You can learn more at www.occ.gov/independentforeclosurereview.

Related Links
Print Feature—Your Independent Foreclosure Review
Radio Script 1—Money Matters: Independent Foreclosure Review
Radio Script 2—Consumer Corner: Foreclosure Review
# # #

The Office of the Comptroller of the Currency (OCC) charters and oversees a nationwide system of national banks and federal savings associations and assures that these banking institutions are safe and sound, competitive, and capable of serving the banking needs of their customers in the best possible manner. OCC press releases and other information are available at http://www.occ.gov. To receive OCC press releases and issuances by e-mail, subscribe at http://www.occ.gov/tools-forms/subscribe/occ-email-list-service.html.

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TILA ACTIONS MAKING A COME-BACK AS LAWYERS AND JUDGES GET MORE RECEPTIVE

Posted on December 20, 2011 by Neil Garfield

EDITOR’S NOTE: FULL CIRCLE. When I started writing this blog I had researched the Truth in Lending law and concluded that it was one of the better pieces of legislation designed to protect consumers and maintain competition in the marketplace. That said, I advised many lawyers to concentrate on TILA violations because the rescission remedy was effective to remove the mortgage and the MONEY (not the house) due back to the “lender” was subject to constraints (who was the creditor and how much is owed, especially after you offset TILA damages, which are significant.

Alas, Judges read things into the law that were not there. Although the “lender” in rescission was obligated to either return all money paid at closing and return the note cancelled and satisfy the mortgage FIRST (or file a Declaratory Action (lawsuit) within 20 days why the rescission does not apply, the theory emerged even at the appellate level (9th Circuit, Federal) that in order to “rescind” one had to tender the money back and that the amount tendered had to be the amount demanded regardless of the actual amount that was due.

But things are changing. They had to change, because the basic problem with every closing in which their was claim of securitization was that the closing was defective, it lacked the disclosure required by law, and it presented loans that were not within industry standard underwriting of loans, nor were things like borrowers income or the value of the property confirmed by an internal review as was done in all mortgage loans prior to the onset of the securitization cancer.

The proposed CFPB rule simply takes existing law and codifies it in a new way — referring to those loans that comply with TILA as “qualified” and those loans that do not comply with TILA as “unqualified.” My prediction is that this new rule will pass. And with it, the challenge to foreclosures for noncompliance with TILA will rise exponentially because TILA fives the lawyer two things that he ordinarily isn’t seeing these days if he is defending foreclosures — (1) attorney fees and (2) damages, a lot of them, on which he can take a contingency fee. Defeat of the foreclosure by invalidating the mortgage lien leaves the homeowner with a lien free house but an obligation outstanding that can be discharged in bankruptcy.

Such an obligation will also be offset by damages for identity theft because the credit record and personal history of each borrower was used to sell bogus mortgage bonds to investors. Many other causes of action like slander of title flow from the that TILA audit. That is why I suggest to everyone who will listen that they get the COMBO, because that is what gives the TILA analyst vital information about what actually happened after closing, but also to get the LIVINGLIES FORENSIC TILA ANALYSIS.

SEE NEW CFPB RULE COULD LEAD TO FLOOD OF FORECLOSURE CHALLENGES

CFPB LIKELY TO ADOPT RULES REGARDING “QUALIFIED” MORTGAGES

If the Consumer Financial Protection Bureau wishes, it could allow borrowers to challenge future foreclosure actions by questioning whether the loan was a “qualified mortgage” in court.

Banks have been lobbying policymakers since May when the Federal Reserve published several options for how lenders must determine a borrower’s ability to repay a mortgage under the Truth in Lending Act. The new rules were proposed under the Dodd-Frank Act to outlaw risky and misleading home loans.

One of the options, known as the QM rule, would allow lenders to originate “qualified mortgages” under a legal safe harbor, provided the loans do not have certain features such as negative amortization, balloon payments, interest-only payments, or terms exceeding 30 years. As long as the bank stays within these guidelines, it will be in compliance.

Another option for QM, though, provides a “rebuttable presumption of compliance” clause, meaning the lender is presumed compliant as long as it follows guidelines in the first option and also verify the borrower’s employment, debt-to-income ratio and credit history.

The industry is very concerned that the CFPB, which assumed the rulemaking duty from the Fed this summer, will choose option two. According to some, the “rebuttable presumption” would mean any future foreclosure would be thrown into court. Foreclosure defense attorneys will able to challenge whether or not the loan being foreclosed upon was QM compliant or not, and if it wasn’t, judges could award TILA damages to the borrower.

“It would be much more expensive if everyone did this,” said Richard Andreano, a partner at the financial law firm Ballard Spahr. “It would get to a point to where it would almost be malpractice for a foreclosure defense attorney not to pursue the claim.”

Roy Oppenheim at Oppenheim Law Firm, a defense attorney in Florida, said there would only be challenges brought when the homeowner and the defense attorney have evidence of noncompliance.

“Not every foreclosure defense attorney will do this,” he said. “If they make good loans there should never be a problem.”


Charles
Charles Wayne Cox – Oregon State Director for the National Homeowners Cooperative
Email: mailto:Charles@BayLiving.com
Websites: http://www.NHCwest.com; www.BayLiving.com; and www.ForensicLoanAnalyst.com
1969 Camellia Ave.
Medford, OR 97504-5403
(541) 727-2240 direct
(541) 610-1931 eFax