HOT TOPIC LEGAL UPDATES

1. HOT TOPICLEGAL UPDATES

2. SPEAKERS

3. 11th Federal Circuit: FL, AL and GA State Decisions Special Assets, L.L.C. v. Chase Home Finance, L.L.C., 2007 WL 4464945, (Ala. 2007) Fire dept. foreclosed liens via publication, no attempt to mail/serve notice to mortgagees, addresses on file w/Sec. St.: Chase due process rights violated, upheld Lower Court setting aside sales. In re American Equity Corp. of Pinellas, Bkrtcy.M.D.Fla.,2005, 332 B.R. 625 (Bkrtcy. MD Fla. 2005)- Creditors/assignees of mortgages/deeds of trust from debtor, sought secured creditor treatment; given lack of evidence parties in possession of notes, enforcement and secured status denied; Florida requires possession of original note or proof original was in possession of assignor or assignee; see Florida Statute 673.3091, State Street Bank and Trust Co. v. Lord, 851 So. 2d 790, 791 (Fla. 4th DCA 2003).

4. 11th Federal Circuit: FL, AL and GA State Decisions JP Morgan Chase Bank v. U.S. Bank National Association, 929 So. 2d 651 (Fla. 3d DCA 2006) After foreclosure sale, court awarded surplus to mortgagor and condo association, omitting defaulted second mortgage; reversed to determine priority; better practice is for junior lien to answer, file crossclaim and join in action. In re Dominique, 368 B.R. 913 (Bkrtcy. S.D. Fla. 2007). Chapter 13 debtors granted discharge of postpetition escrow increases when lender failed to provide RESPA required annual escrow accounting; Federal RESPA and Florida law �501.137(2) requires a lender to provide annual notice to borrowers of any deficiency in escrow account and therefore lender waived right to collect any deficiency in escrow even in bankruptcy context.

5. 11th Federal Circuit: FL, AL and GA State Decisions Jackson v. Bank One, 652 SE 2d 849 (Ga. App. 2007) Mortgagor, who conveyed property prior to foreclosure sale could not set aside sale; Georgia Code 44-2-2(b,c) provides deeds, mortgages, and liens which are required by law to be recorded take effect only from recording; statute's purpose was to protect interests of third parties, not parties to the mortgage. Citifinancial Corporation, LLC v. Peoples, 973 So. 2d 332 (Ala. 2007)- Borrower sued lenders, alleging wrongful; lenders moved to compel arbitration; court found lenders did not substantially invoke the litigation process by foreclosing on mortgage so as to waive their arbitration clause of mortgage agreement; arbitration clause specifically excluded foreclosure, the foreclosure was nonjudicial.

6. 11th Federal Circuit: FL, AL and GA State Decisions In re Taylor, 379 B.R. 388, (Bkrtcy.M.D.Fla.,2007) Debtor filed motions to compel and for contempt for discharge violations; mortgage lender's delay in modifying its accounting system led to incorrect postconfirmation mortgage statements, no sanctions against lender, no evidence that, despite receiving these incorrect statements, debtor paid more than he should have under plan.

7. 11th Federal Circuit: FL, AL and GA State Decisions Walker v. Midland Mortgage Co., 935 So. 2d 519 (Fla. 3d DCA 2006) Mortgagors in default, who had an agreement with former servicing agent to delay filing of a foreclosure action so that mortgagor could pay with personal injury proceeds, showed no evidence of agreement with new servicing agent requiring such new agent to also forbear from instituting foreclosure proceedings. Trent v. MERS, Inc., 2007 WL 2120262 (M.D. Fla.) Mortgagors aware of MERS' role per loan docs (MERS as nominee for lender: lender remained "creditor", MERS obtained legal title to note, ability to Foreclose; suit brought in name of MERS for lender legally sufficient, standing to being action.

8. In re Schuessler, ---B.R. ---, 2008 WL 1747935, Bkrtcy.S.D.N.Y., 2008(No. 07-35608) Facts: On 3/12/03, Debtors executed loan documents for $178,000 in favor of JPMorgan Chase Bank. Debtors home was given as collateral on the loan. Prior to filing bankruptcy, Debtors regularly paid late and paid the late charges. Debtors also made payments at a local branch. Debtors filed a Chapter 7 bankruptcy to discharge unsecured debt. Debtors were considered current on mortgage payment at the time the case was filed. After filing bankruptcy, Debtors continued to make late payments and made one payment at the local branch. However, when Debtors tried to make a second payment at the local branch, that payment was refused. Subsequently, Chase Home Finance (�Chase�) filed an erroneous Motion for Relief. Issue: Whether Chase should be sanctioned pursuant to Bankruptcy Rule 9011(b)(3) for allegations in its pleading that appeared to have no factual support. Holding: Yes Court�s Discussion

9. 5th Circuit: TX, LA and MS Case Law Updates - Foreclosure Burney v. Citigroup, --- S.W.3d ---, 2008 WL 345445, Tex. App.-Dallas, February 8, 2008 (NO. 05-06-01443-CV): Court found that under the facts and circumstances of this case, notice of filing an expedited application for foreclosure after the requisite notice of intent to accelerate is sufficient to constitute notice of acceleration. LESSON: What is the Lesson from this case?

10. 5th Circuit Foreclosure Case Williams v. Countrywide, No. 07-20672, 2008 WL 687295 (5th Cir. Mar. 13, 2008) FACTS: Deutsche Bank, as trustee, foreclosed on Williams� home and Williams filed suit on the grounds that Deutsche violated consumer protection statutes. The Court granted summary judgment in Deutsche Bank�s favor. On appeal, Williams argued that Deutsche lacked authority to authorize the foreclosure sale because of inconsistencies in the summary judgment documents showed Deutsche as trustee for 1994-2, rather than 1995-3. Analysis: Williams provided no evidence that the incorrect numbers were other than typographical errors, or that they caused any harm or affected the foreclosure process in any way.Note: After watching lenders like a hawk, this case is a nice relief to know that not every mistake is grounds for invalidating foreclosure.

11. Mississippi Case Regarding Validity of Lien Countrywide v. Parker, No. 2007-CA-00039-SCT, 2008 WL 451456 (Miss. Feb. 21, 2008) Facts: In 1990, when Julius and Dorothy married, Julius moved into Dorothy�s house. Dorothy refinanced her home in 2000 and executed a deed of trust, which Julius never signed. In 2004, Dorothy executed a second deed of trust in favor of WMC Mortgage, which assigned it to Countrywide. Julius never signed the second deed of trust either. In her application for the second loan, Dorothy stated that she was separated from her husband, although they were never separated. Dorothy died, and Julius seeks to invalidate the second deed of trust. Analysis: Case is controlled by Mississippi statute that says that a deed of trust on a homestead must be signed by the spouse to be valid or binding. Since the Countrywide deed of trust was not signed by Julius, it was invalid. The Court refused to allow Countrywide an equitable lien where a statute declared the lien invalid or not binding. Lesson: Always have the spouse sign the deed of trust, regardless of whether they are separated.

12. Southern District of Texas Bankruptcy Case In re Parsley (2008 WL 622859, Bankr. SD Tex. March 5, 2008): A Southern District of Texas bankruptcy judge issued an �Order Requiring Countrywide Home Loans, Inc. to Appear and Show Cause Why It Should Not Be Sanctioned for Filing a Motion for Relief from Stay Containing Inaccurate Debt Figures and Inaccurate Allegations Concerning Payments Received From the Debtor�

13. In re Parsley, (cont.) The judge referenced the inaccurate application of the first post-petition mortgage payment to pre-petition arrears rather than the payment then due, and a payment not indicated on the payment history but appearing on Countrywide�s own transaction history. The court was concerned that the debtor incurred unnecessary legal fees/costs because the motion to lift stay was withdrawn �at the eleventh hour because it contained factual inaccuracies that Countrywide and its counsel should have discovered prior to the filing of the Motion if proper attention [had] been given to the Debtor�s mortgage payment history and appropriate procedures.� On 3-5-08, no sanctions ordered. Lesson: Check pay histories for accuracy before filing with the court. Make sure all payments are properly applied and included on the pay history. Otherwise, not accounting for payments received during bankruptcy may lead to court sanctions at the worst and expensive discovery at the least.

14. Texas Bankruptcy Case Regarding Fees and Costs In re Ezzell, No. 07-34780, slip op. at 1-2 (Bankr. S.D. Tex. Jan. 14, 2008). Post-petition application for fees must comply with Rule 2016(a) Application for $200 denied for various reasons, including fact that attorneys fees were not sought for �enforcement of the note� as provided by Deed of Trust Padilla v. Wells Fargo Home Mortgage, Inc. (In re Padilla), 379 B.R. 643, 651 (Bankr. S.D. Tex. 2007). Rule 2016(a) does govern collection of reimbursable expenses by mortgage lenders in chapter 13 cases Reimbursable expenses that go beyond what is allowed under non-bankruptcy law do not violate the automatic stay, but do violate the order confirming the debtors� Chapter 13 Plan, thus entitling the debtors to relief against the lender.

15. Texas Bankruptcy Case Sanchez v. Ameriquest Mortgage Co., 372 B.R. 289, 321 (Bankr. S.D. Tex. 2007). A creditor holding a lien on a debtor�s homestead may not assess post-petition charges, even if those charges are specifically allowed under the pre-petition loan documents, unless the creditor provides notice to the debtor, and attains approval from the court.

16. Sanchez Case (cont.) Post-petition, post-confirmation charges allowable under 11 U.S.C. � 506(b) But, the creditor must provide documentation to the court so that the court may review and analyze the application to determine reasonableness of the charges. For post-confirmation charges, state law determines the charges� reasonableness But, again, the creditor must disclose the charges to the court for the court to determine reasonableness Tax Advances: Advancing taxes, as permitted by loan agreements, is purchasing the taxing authority�s claim requiring compliance with the Bankruptcy Rule 3001(e). Under Rule 3001(e), a creditor wishing to purchase another creditor�s claim must file notice of the transfer with the court. Thus, according to one judge, Rule 3001(e) requires a creditor to file notice of a transfer with the court when advancing taxes post-petition.

17. More on Tax Advances in Texas Bankruptcy Courts Campbell v. Countrywide Home Loans, Inc. (In re Campbell), 361 B.R. 831, 836 (Bankr. S.D. Tex. 2007). In Texas, the debtors� liability for property taxes accrues on January 1st of the year. Countrywide had advanced pre-petition and increased the escrow payments post-petition. Because the taxes arose pre-petition, Countrywide violated the automatic stay by increasing the escrow payments post-petition

18. Southern District of Texas Bankruptcy Case Regarding Accounting Reyna v. GMAC Mort., LLC, Case No. 07-07007 (Bankr. S.D. Tex.) Class action alleging that GMAC Mortgage, LLC abused the entire bankruptcy process as a matter of practice by failing to correctly account for payments, collecting pre-petition debts and charging improper fees. Specific allegations included Failure to bifurcate claims between normal monthly payments and deficiency payments � resulting in demands for payment of pre-petition debts in incomprehensible and false amounts or filed motions to lift stay using clearly false allegations. Adding unapproved attorneys� fees and other costs to the loan balance and Failing to cause its computer systems to properly modify bankruptcy debts � resulting in demands for prepetition debts in violation of the automatic stay. 

19. Reyna Case (cont.) Defenses asserted include: Bankruptcy court lacked subject matter jurisdiction over unnamed plaintiffs whose bankruptcy cases were outside the federal district, or that the court should at least abstain from exercising any such jurisdiction in the interests of comity and judicial administration. no private causes of action exist under �� 105, 506, 524, 1322(a)(1), 1322(b)(5), 1326(c), 1327(a) or 1328 � 1322 of the Bankruptcy Code would not permit debtors to modify the way in which GMACM, a lender secured solely by an interest in the debtors� primary residence, applies payments to the loan account. No stay violation because the payments were made outside the Chapter 13 Plan. Lessons from Reyna Case: Plaintiffs lawyers are on the prowl Class action exposure may exist Accounting in bankruptcy is serious Failure to modify systems to address issues raised in recent litigation could lead to large damage claims

20. Texas Case on Punitive Damages for Misleading Lending Practices Davis v. Ocwen Federal Bank, et al. (212th District Court, Galveston County, Tex.): a Galveston County jury awarded an $11.5 million judgment for the plaintiff after determining that Ocwen Federal Bank (�Ocwen�) engaged in a scheme of unfair, unlawful and deceptive trade practices in its servicing of Davis�s home equity loan. Davis obtained the loan in February 2002. In 2003, an illness caused Davis to miss one loan payment. While Ocwen promised to put Davis on a payment plan to recoup the missed payment, it never did. It also failed to credit Davis for money she paid and instituted foreclosure on her home At trial, a former Ocwen employee testified as to the company�s unfair practices, such as providing incentives to loan collectors for moving properties with equity into foreclosure. Further, evidence demonstrated that the company engaged in predatory servicing by not informing borrowers how they could bring their loans current and failing to credit accounts when payments were made. Based on that testimony, the jury found Ocwen�s actions to be knowing and intentional, and thus awarded Davis $10 million in punitive damages and $1.15 million in attorney fees.

21. Texas DTPA Violations for �Escrow Services� Allen v. Am. Gen. Fin., Inc., No. 06-273, 2007 WL 4180145 (Tex. Nov. 28, 2007). Borrow sought home equity loan to pay delinquent taxes and AGF assured him they would take care of the taxes. �a person who seeks �only the extension of credit . . . and nothing more� is not a consumer under the DTPA because the lending of money is not a good or service.� �However, when a borrower�s objective is to obtain goods or services and the loan provides the means for obtaining the goods or services, the borrower qualifies as a consumer.� �Escrow services� elevated borrower to consumer allowing DTPA action to survive.

22. Louisiana Bankruptcy Cases In Re Osborne (Middle District of Louisiana, 375 B.R. 216) The Court sanctioned the creditor�s counsel for filing a motion for relief and signing an affidavit of default with incorrect figures and found that the attorney willfully abused the bankruptcy process by filing a motion with incorrect figures. The bank and it�s attorney were jointly sanctioned for $5,000 in emotional damages and over $40,000 in attorney fees. In re Jones, 2007 WL 2480494 (Bankr.E.D.La. Aug 29, 2007) (NO. 03-16518, ADV. 06-01096) The Court sanctioned the Mortgagee for assessing post petition charges on a loan in Chapter 13 filing, withholding this fact from the borrower and using trustee payments toward these costs not authorized by the Bankruptcy Court. The Court considered a multi-million dollar sanction but the mortgage offered an alternative-whereby it would revise it�s practices, have same memorialized in an order of the court, and same would be enforceable in any case pending or subsequently filed in any court in the country. The Court issued over $67,000 in sanctions and actual damages. The case is currently up on appeal

23. Mushasi Paraphrased Quote of the Day �Always take arrows in your forehead, Never in your back.�

24. In Re: Ocwen Loan Servicing491 F3d 638 Take Away�s Pre-emption - use it if you have it Seek Clarity before filing dispositive motions on shotgun style allegations Ocwen � previously a Federal Savings Bank Regulated by the Office of thrift Supervision

25. In re: Ocwen Loan Servicing Numerous class actions brought by borrowers in various districts Allegations � FDCPA, TILA, RESPA, and state law claims that excessive fees were charged in foreclosure actions Ocwen moved to dismiss and lost GUIDANCE AND CRITICISM FROM THE COURT Judge Posner, Rovner and Sykes Posner � author of many FDCPA opinions against creditors

26. Court Criticism and Hindsight Court Criticism - �It would have been better had the defendants deferred their motion, and the district judge his ruling until. . . . Court Hindsight contention interrogatories to �smoke out what exactly the plaintiffs are charge� or �the judge told the plaintiffs to specify the� alleged wrong acts of the defendants so that the judge could determine what if anything was pre-empted

27. Why the Criticism Posner wrote � �the defendants can hardly be blamed for wanting to strangle the monster in its crib� Posner called the complaint �a hideous sprawling mess� 40 pages, 221 paragraphs

28. HOLA Empowered the OTS to regulate Allows federal S&L�s to extend credit without regard to state law Several examples of what is pre-empted Some examples of what is not

29. In re: Ocwen Loan Servicing (cont.) For pre-emption to apply the claimed acts have to fall into the category of pre-empted activities On a motion to dismiss, the court only has the benefit of the complaint to determine which claimed bad acts fall into the pre-emption versus state law remedy column Remember � Hideous Sprawling Mass First 19 pages allege various acts of skullduggery No indication of which acts go to state vs. federal claims While many of the claims are probably pre-empted, some may not be Court discussed �how poorly drafted the complaint is� Because the clarity was not obtained at the beginning of the

30. Court Reiteration & Practice Pointer Court reiterated Judge should have required plaintiff�s to clarify On remand � judge ordered to focus on acts alleged, obtain clarity on allegations, then decide which are pre-empted Practice Pointer � not necessarily a good idea to move for dismissal or summary judgment at the outset. In some cases, like this one, you need to get the facts clear. Interrogatories, discovery, motions for more specific allegations,

31. Maryland Senate Bill 216/House Bill 365 On April 3, 2008 the governor of Maryland signed into law the above as emergency legislation. Same is intended to help identify mortgage originators with a high level of loans in foreclosure and also modifies the foreclosure process in Maryland. 1) Recordation Requirements Any security instrument to be recorded must include the license number of the mortgage originator (individual) and mortgage lender. If the originator/lender is not a Maryland Licensee then an affidavit stating that the originator and/or lender is exempt from the Maryland licensing requirement must accompany the document for recording.

32. Maryland Senate Bill 216/House Bill 365 2) Foreclosure Requirements lender must wait 90 days from default before filing the foreclosure action a Notice of Intent to Foreclose must be mailed to the borrower by certified and first class mail 45 days before the filing of the foreclosure action with a copy to the Commissioner of Financial Regulation an Order to Docket or a Complaint to Foreclose must contain the license number of the mortgage originator and lender must include (in part): an affidavit which states includes the date of default and nature of default original/certified copy of the mortgage or deed of trust statement of debt remaining due copy of debt instrument with an affidavit certifying ownership of same original or certified copy of the assignment (if applicable) additional notice to the borrower

33. Maryland Senate Bill 216/House Bill 365 Notice to be included in Order to Docket or Complaint to Foreclosure must include language advising of the below (in part): the foreclosure sale can be held anytime after 45 days from the date the notice is served on the borrower advising of the option to reinstate suggesting they obtain legal counsel to contact a real estate broker if they are interested in selling the property providing information on housing counseling and financial assistance programs warning borrowers to be careful of individuals offering to help them save their home suggesting the borrower seek help before entering into any agreements regarding the foreclosure.

34. In re Nosek 363 B.R. 643 (Bkrtcy. D. Mass. 2007 Show cause order was issued to determine why numerous parties representing Ameriquest had failed to advise court that Ameriquest was in fact only servicer, not holder of the note at issue Term �holder� has a very specific definition when used in connection with a note and court demanded to know why it was �mislead� during number prior proceedings about Ameriquest�s true status

35. In re Nosek In Memorandum Opinion issued April 25, 2008, court noted : �the parties� confusion and lack of knowledge, or perhaps sloppiness, as to their roles is not unique in the residential mortgage industry.� (p. 8) Court noted that �parties who do not hold the note or mortgage and who do not service the mortgage do not have standing to pursue motions for relief from stay. . (p.8) Court did not buy Ameriquest�s defense that confusion as to a party�s role is understandable against the current commercial climate. (p. 12)

36. In re Nosek Court also did not buy the defense that the Pooling and Servicing Agreement gave Ameriquest the power to act in its own name. Even if true, court held that a proof of claim filed under a written power of attorney MUST have the power of attorney attached. Fed. R. Bankr.P. 3001, Official Form 10 (p. 12) Court admonished lenders and servicers that the rules of the Court apply to them and �their private agreement and the frenzied trading market for mortgages do not excuse compliance with the Bankruptcy Rules� . . . Court sanctioned Ameriquest $250,000 under Rule 11

37. In re Nosek Responsibility of Ameriquest Counsel Court did not allow counsel off the hook Bankruptcy counsel should not have relied on client�s representations since they had information that prior foreclosure was conducted in the name of Norwest, the holder Had they checked their own files, they would have seen that Norwest was perhaps real party in interest, and had duty to make further inquiry Firm was sanctioned $25,000 Court did not sanction the individual young associates but admonished them to be mindful of their duties under Rule 11

38. In re Nosek Attorney The named attorney was a partner with the firm and tried the defense of Ameriquest adversary, court sanctioned him $25,000 The Court did not buy the defense that the named attorney �had not been involved since October 2006 and never knew about Norwest� Court said this �begged the question, he should have known about Norwest.� (p. 15)

39. In re Nosek The Other Firm and Attorney Court described them as �one of the prime sources of the problem in this case.� �By its own admission, the firm cannot determine whether it had information as to the identity of the owner at the time the proof of claim was prepared� (p. 15) �As national counsel to a mortgage lender, it has a responsibility to know its client�s role in a case. It cannot rely on the representations of its client; it has a responsibility to question and probe to the extent necessary to ensure that it has elicited correct information.� (p.15) Firm was sanctioned $100,000. No sanctions against Attorney individually

40. In re Nosek Norwest n/k/a Wells Fargo �Sought to hide behind the Pooling and Servicing Agreement . . . Turned over all responsibilities to Ameriquest regarding collection and servicing of the note.� (P. 16) �The Court does not accept that one can simply by contract sever the benefits and burdens associated with residential mortgage lending.� �Under the guise of creating a complex structure to suit their needs, Wells Fargo and Ameriquest have attempted to jettison the obligation to be forthright and diligent with the Court and the Debtor.� (p. 17) Court imposed $250,000 sanction against Wells Fargo, noting that it �continues as a participant in the mortgage industry.

41. Parsley vs. Nosek Comparison Parsley (S.D. Tex.) In re William Allen Parsley, 05-90372 (S.D. Tex. March 5, 2008 Failure to credit payment �Over a year ago, on February 6, 2007 the Court sought a simple answer to a simple question-why as a Motion to Lift Stay being withdrawn? Id at 1. Specific finding of �bad faith� required for sanctions under Section 105 Individual attorney misrepresentation = bad faith Attorney bad faith imputed to foreclosure law firm No sanctions against attorney, foreclosure law firm or national law firm outsourcer Admonishments not sanctions: Fixed fees financially lucrative, but create decreasing professional standards Direct contact between local law firm and servicer should be allowed by outsourcing firm Servicer affirmative duty to provide accurate payment records

42. Parsley vs. Nosek Comparison Nosek (D. Mass.) Nosek v. Ameriquest Mortgage Company, 02-46025; Adversary Nos. 04-45127 and 07-4109 (D. Mass.) April 25, 2008 Failure to provide evidence of lien ownership/servicing capacity �The link between lender and borrower in the current residential mortgage industry is a multilayered, tightly � if not hopelessly-entangled �assembly lien� the purpose of which seems to be avoidance of responsibility. � Id at 17. Sanctions imposed: Originator/servicer $250,000 Foreclosure law firm $25,000 Partner, foreclosure law firm $25,000 National outsourcing law firm $100,000 Current servicer $250,000 2 associate attorneys, foreclosing law firm � Warning Associate attorney in new law firm - Warning

43. ConclusionQuestion & Answer Period If you have any further questions that were not addressed in this presentation, or want to contact one of our speakers, please email Matt Bartel, COO of AFN, at mbartel@e-afn.org. Thank you for your participation in this webinar. Please complete the brief survey which you will be directed to at the conclusion of this presentation. * AFN provides the information contained in these webinars as a public service for educational and general information purposes only, and not provided in the course of an attorney-client relationship. It is not intended to constitute legal advice or to substitute for obtaining legal advice from an attorney licensed in the relevant jurisdiction.