Enforcement Action Against Rating Agency Allowed To Proceed

        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.]

 

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Another Lesson From A New Jersey Court On The UCC And Standing To Foreclose

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.

 

 

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Burt Reynolds Seeks Deliverance From The Evils Of The Foreclosure Crisis

by:  Peter J. Gallagher

 
Is no one safe from the foreclosure crisis?  Various news outlets are reporting that Burt Reynolds is on the verge of losing, not the Best Little Whorehouse In Texas, but his Florida mansion to the bank (click here, here, here, and here for stories).  Apparently, the bank is looking to pull down the Evening Shade on the actor because he has not made a mortgage payment since September 2010 and owes approximately $1.2 million on a home valued at $2.4 million.  (For those of you who are curious, the house has a swimming pool, private beach, boat dock, cinema and, of course, its own hair salon.)  Reynolds has enjoyed many Boogie Nights in the property and on its Longest Yard since he purchased it for $1.5 million in 1994.  However, Smokey now appears to have caught up with the Bandit and Reynolds finds himself in the Sharkey's Machine like so many other residents navigating through foreclosure in Florida.  Unless there is another Cannonball Run sequel in the works, it looks like Reynolds may find himself Starting Over in a new home.

How To Get A $300,000 Home For Just $16!!

by:  Peter J. Gallagher

A Texas man has moved into a $300,000 home in a "well-manicured" section of Flower Mound, Texas and it only cost him $16 to do so.  As the Daily Mail recently reported ("Man Uses Obscure Law To Obtain Ownership Of $300K Home In Upscale Texas Town . . . for just $16"), the man took advantage of an "obscure" Texas law that permits residents to take ownership of abandoned homes through adverse possession.  Although apparently not too popular with his new neighbors, the man is the envy of extreme couponers and bargain hunters everywhere. 

As the article notes, the house was abandoned after being hit with a trifecta of mortgage crisis phenomena:  (1) the mortgage company foreclosed upon the property; (2) the owners simply walked away from the mortgage and the property; and (3) the mortgage company went bust.  Enter Kenneth Robinson.  After doing "months of research," Robinson filled out some paperwork, paid the $16 filing fee, and moved his belongings into the home.  Robinson is now seeking to take ownership in the home under a law that the paper described as follows: 

Under the law, if someone moves into an abandoned home they have exclusive negotiating rights with the original owner.

If the owner wants them to leave, they have to pay off the mortgage debt on the home and the bank has to file a complicated lawsuit to get them evicted.

Mr Robinson believes that because of the cost required to move him out, he will be able to stay in the house. Under occupancy laws, if he remains there for three years he can ask the court for the title.

Staying three years may prove difficult though, as the home currently does not have any water or electricity.  Nonetheless, Robinson appears undeterred.

Not surprisingly, the neighbors have not welcomed Robinson to the neighborhood with open arms.  In fact, since moving in, Robinson has put up "No Trespassing" signs after his neighbors called the police to have him arrested for trespassing.  However, according to the police, Robinson cannot be arrested or removed because home ownership is a civil matter.  Judging by the comments from the neighbors, it does not appear that the matter will stay civil for much longer.

And Gordon Gekko Wept…New Book Blames Financial Crisis On “Reckless” Greed

by:  Peter J. Gallagher

In the movie Wall Street, Gordon Gekko famously claimed that "greed is good."  A new book out by Pulitzer Prize winning New York Times reporter Gretchen Morgenson begs to differ.   In her book, "Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon," Morgenson lays the blame for the financial crisis squarely at the feet of Fannie Mae, and particularly its CEO James Johnson, who built the quasi-governmental entity into "the largest and most powerful financial institution in the world."  While government regulators sat idly by, Fannie Mae allegedly "fudged accounting rules, generated big salaries and bonuses for its executives, used lobby and campaign contributions to bully regulators, and encouraged the risky financial practices that led to the crisis."  To read more about the book, including an excerpt, check out "How 'Reckless" Greed Contributed To Financial Crisis" on NPR's website.