backed – Pete's Take

by: Peter J. Gallagher (@pjsgallagher)

In an interesting decision issued today, Judge Katz (Essex County) denied a motion to dismiss filed by the ratings agency Standard & Poor's ("S&P") in an enforcement action brought against S&P by the New Jersey Attorney General. In Hoffman v. McGraw-Hill Financial, Inc., the Attorney General alleged that S&P violated the Consumer Fraud Act ("CFA") by misrepresenting to New Jersey consumers that S&P's analysis and rating of structured finance securities was independent and objective. The opinion contains decisions on both procedural personal jurisdiction issues and substantive CFA issues that all litigators should find interesting.

[Lawsuits against ratings agencies are nothing new. Several years ago, I wrote an article about these lawsuits and, at the time, the relative success the rating agencies had defending against them. (If you did not save your copy of the article, click here for another copy.) Historically, the rating agencies argued that their ratings were proetced under the First Amendment, but at least one court rejected this argument in the context of a motion to dismiss in a lawsuit that eventually settled.]

Continue reading “Enforcement Action Against Rating Agency Allowed To Proceed” →

by: Peter J. Gallagher (@pjsgallagher)

The running battle between lenders and borrowers over standing to foreclose continues in the Garden State. A recent decision from the Appellate Division — Bank of New York v. Ukpe — is the latest in an ever-growing body of case law addressing this issue from seemingly every conceivable angle.

The facts in Ukpe will be familiar to anyone who has followed the wave of residential foreclosures in recent years. Defendants applied for a mortgage from Countrywide Home Loans, Inc. (“CHL”). They claimed that they told the broker that they could not afford a monthly payment over $1,000 and were assured by the broker that the monthly payment would not exceed this amount. However, at the closing, they learned that the monthly payment would be almost $1,500 per month. They alleged that the broker told them not to worry because they could refinance the loan a few months after closing. Nonetheless, two years later, after several unsuccessful attempts to refinance the loan, Defendants defaulted.

Defendants’ note was made "payable to lender," and the mortgage, after it was recorded, was held by Mortgage Electric Recording System ("MERS") as nominee for the lender. Shortly after being recorded, the mortgage was securitized along with other mortgages. As part of this process, several entities entered into a "Pooling and Servicing Agreement" ("PSA"). Under the PSA, CHL was identified as a "seller," CWABS, Inc. was identified as the "depositor" and "master servicer," and the Bank of New York ("BNY") was identified as the "trustee." Under the PSA, the CHL and the other “sellers” transferred the mortgages to CWABS, Inc., which then transferred them to BNY, which held the mortgages for the benefit of the investors in the newly-created security. The PSA also required the original mortgage notes to be endorsed in blank and delivered to BNY.

After Defendants defaulted, BNY filed a foreclosure complaint. In response, Defendants claimed, among other things, that BNY lacked standing to foreclose because it was not a holder in due course. The trial court rejected this claim and the Appellate Division affirmed. In doing so, the Appellate Division provided a crash course in what it means to be a holder in due course.

Continue reading “Another Lesson From A New Jersey Court On The UCC And Standing To Foreclose” →