Supreme Court Issues Important Decision On Truth In Lending Act

by: Peter J. Gallagher (@pjsgallagher)

Please check out an article I wrote for law360.com on the U.S. Supreme Court's  recent decision in Jesinoski v. Countrywide Home Loans. Here is the opening paragraph:

On Jan. 13, 2015, the U.S. Supreme Court released its opinion in Jesinoski v. Countrywide Home Loans (No. 13-684) and resolved a circuit split on an important issue arising under the Truth in Lending Act, 15 U.S.C. §1601-1677 (“TILA”). Under TILA, a borrower has the right to rescind certain loans for up to three years after the loan is consummated. To exercise this right, borrowers must “notify the creditor” of their intention to rescind the loan within three years. The question in Jesinoski was whether a borrower satisfies this requirement by sending written notice to a lender of its intent to rescind or whether the borrower must file a lawsuit within the three-year statutory period. In recent years, a circuit split had developed over this issue. In Jesinoski, the Supreme Court resolved this split, holding that written notice is sufficient.

Check out the rest of the article here.

Four Residential Mortgage Lenders May Resume Uncontested Foreclosures: Will Long Processing Backlogs Return?

by:  Michael L. Rich

Mercer County Superior Court Judge Mary Jacobson ordered that four of New Jersey's six largest mortgage servicers may resume uncontested residential foreclosures after apparently demonstrating they have taken adequate steps to remedy improper "robo-signing" and other questionable practices.  Specifically, the Court’s directive permits Bank of America, Citibank, JPMorgan Chase Bank and Wells Fargo to resume uncontested residential foreclosures which had been effectively halted since December 2010.  Retired Appellate Division Judge Richard Williams, serving as Special Master, reported that these four institutions had made a prima facie showing that they implemented new processes to redress the problems previously identified.  His Report led to the Court’s recent ruling.

These four mortgage servicers, together with several other big banks, account for a large percentage of New Jersey's residential foreclosures.  Thus, the approximate 7-month hiatus occasioned by the Court’s prior halting of uncontested foreclosures by these servicers afforded an opportunity for New Jersey’s Office of Foreclosure to make some significant strides in reducing the long backlogs that been occurring due to the unprecedented level of residential foreclosure filings – particularly as concerns speeding up the processing of larger commercial foreclosures.  However, with the temporary halting lifted, at least as to the four major banks, it is altogether likely that the backlog in processing final foreclosure judgment applications through the Office of Foreclosure is likely to return  and perhaps even worsen over the coming months.

Surprise! You Don’t Have To Pay As Much As You Thought On That Mortgage

by:  Peter J. Gallagher

Last week, Bank of America agreed to a multi-billion dollar settlement with upset investors who had purchased securities comprised of subprime mortgages originated by Countrywide Financial (which Bank of America acquired in 2008) and serviced by Bank of America ("Bank Of America Settles Claims Stemming From Mortgage Crisis").  Among other things, the investors claim that that Countrywide "created securities from mortgages originated with little, if any, proof of assets or income," and that Bank of America then "failed to heed pleas for help from homeowners teetering on the brink of foreclosure."  While the settlement still needs to be approved by a judge, and has already run into some opposition ("Investors Challenge Bank Of America Settlement" and "Bank Of America's Proposed Mortgage Debt Settlement Criticized"), it was generally seen as the first major concession by a bank in connection with its role in the mortgage meltdown

On the heels of this settlement comes news that Bank of America (along with JPMorgan and a few other lenders) is also taking a more proactive approach with homeowners who are not even in default.  As the New York Times reports in its article, "Big Banks Easing Terms On Loans Deemed As Risks," the banks are "quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk."  The article tells the story of Rula Diosmas, a Florida (of course) woman who had $150,000 shaved off of the mortgage of her Miami condominium by JPMorgan even though she did not request a modification and was not in default.  The bank explained its reasoning as follows:

Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.

. . .

Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.

. . .

“By proactively contacting pay option ARM customers and discussing other products with better options for long-term, affordable payments, we hope to prevent customers from reaching a point where they struggle to make their payments,” Mr. Frahm [a spokesman for Bank of America] said.

The banks' efforts have not come without some critism, however, including the claim that the banks are behaving in "contradictory and often maddening ways" — showing concern for those who might get in trouble while at the same time being punished by regulators for doing a poor job modifying mortgages that are already in default.

The Latest Wave In The Foreclosure Crisis? Another Bank Branch Foreclosed Upon By Borrower

by:  Peter J. Gallagher

Several weeks ago, we brought you the story of a Philadelphia man who foreclosed on his local Wells Fargo branch ("Turning The Tables: Philadelphia Man Forecloses On Wells Fargo Branch") after the bank failed to pay a judgment the man obtained against the bank for violating the Real Estate Settlement Procedures Act.  The bank eventually paid.  Well, now it has happened again. 

In Florida, which should just change its name to the "Foreclosure State" at this point, a couple recently received a foreclosure complaint from Bank of America.  Nothing too strange in this day and age, except that the couple had paid for their home in full and in cash when they purchased it.   As the Naples News reported — in the cleverly titled "Tables Turned, Bank Pays Up In Mistaken Foreclosure Case" — the homeowners were forced to hire a lawyer, who spent weeks on the phone and in court before the case was dismissed, costing the homeowners $2,500 in legal fees.  The court ordered the bank to pay these fees, but after five more months of phone calls, neither the bank nor its local counsel had paid.

This is where the story gets interesting.  The homeowners' lawyer obtained a writ of execution from the local sheriff in connection with the debt and took it with him — along with local media, sheriff's officers, and a moving van — to a local Bank of America branch and demanded payment or the branch would start losing furniture, money in the cash drawers, and any other assets needed to satisfy the debt.  Not surprisingly, the branch manager quickly cut a check to the couple for the outstanding amount.  In a written statement, Bank of America apologized to the homeowners and did the only thing it could do, blame the law firm that had been representing the company, which has since gone out of business, for failing to respond to the homeowners' requests.

Banks Pay Millions Over Wrongful Military Foreclosures

by:  Peter J. Gallagher

Just in time for Memorial Day, Bank of America agreed to pay millions of dollars to settle claims that it wrongfully foreclosed on the homes of scores of active-duty service members.  As the Charlotte Observer reported in the article entitled, "Bank of America Unit To Pay $20 Million Over Military Foreclosures , Countrywide Financial, which BOA acquired in 2008, foreclosed upon approximately 160 service members while they were serving overseas.  A lawsuit filed by the Department of Justice in federal court in California alleged that BOA violated the Civil Relief Act by failing to consistently check on the military status of borrowers before initiating foreclosure proceedings. The DOJ began investigating BOA after U.S. Marine Corps referred a case involving a service member facing foreclosure by Countrywide. 

 Under the terms of the settlement, BOA agreed to: (1) establish a $20 million fund to compensate service members; (2) pay all costs associated with any homes that were foreclosed upon without court orders between June 1, 2009, and Dec. 31, 2010; and (3) undertake corrective actions, including starting a dedicated customer service unit for service members and a loan balance reduction program for military members who are behind on their payments.

As the article notes, this settlement is only the latest Countrywide-related problem for BOA.  The bank is also  one of the many banks considering a settlement with various states attorneys general related to various mortgage servicing errors.  Most of BOA’s issues arise out of loans originated by Countrywide before BOA purchased the California-based lender as it teetered on the brink of collapse. 

Prior to the BOA settlement, the Justice Department settled with both Morgan Stanley and JPMorgan Chase % Co.  over similar allegations.  Morgan Stanley, which agreed to pay $2.36 million as part of its settlement, allegedly foreclosed on approximately 18 service members without court orders.  JPMorgan, which agreed to pay $27 million, acknowledged that it overcharged approximately 6,000 service men and women who were overcharged on their mortgages.  JPMorgan also agreed to cut interest rates on soldiers' home loans and return homes that were wrongfully foreclosed upon.  Finally, both banks issued statements apologizing to the U.S. military personnel for their actions.