More Courts Reject Eleventh-Hour Attempts To Avoid Foreclosure Based On An Alleged Lack Of Standing

by:  Peter J. Gallagher

 Two more Appellate Division panels have refused to allow defendant's in foreclosure lawsuits to raise standing as an eleventh-hour defense.  As we previously reported — Changing Tide in Forclosure Litigation? Courts Taking Closer Look When Defendants Assert Lack Of Standing At Last Minute — there is now a clear trend against allowing defendants to stay silent in the face of a foreclosure lawsuit only to appear at the last minute, usually on the eve of a sheriff's sale, and seek to vacate final judgment based on an alleged lack of standing to foreclose.  Two recent Appellate Division cases continue to bring this point home. 

In IndyMac Bank FSB v. DeCastro, a residential borrower moved to vacate final judgment and dismiss the complaint 15 months after it was entered, arguing that he was not served with the complaint.  The motion was denied.  Defendant filed a second motion to vacate, arguing, for the first time, that the bank lacked standing to foreclose because it was not assigned the mortgage until after the complaint was filed.  This motion was denied as untimely and defendant appealed.  In an opinion, dated March 13, 2013, the Appellate Division affirmed.  In its decision, among other things, the Appellate Division rejected defendant's standing argument, noting: "[W]e have now made clear that lack of standing is not a meritorious defense to a foreclosure complaint."  Moreover, the Appellate Division held that defendant's standing argument was meritless "particularly given defendant's unexcused, years-long delay in asserting that defense or any other claim."  In arriving at this decision, the Appellate Division relied on many of the cases discussed in our prior post. 

Similarly, in WellsFargo Bank, N.A. v. Lopez, a different Appellate Division panel rejected another residential home owner's last-minute attempt to raise standing as a defense to the foreclosure complaint.  The facts in that case were a bit more egregious because the borrower contributed to the four-year delay between the entry of default and the filing of his motion to vacate by filing numerous bankruptcy petitions and seeking a stay to attempt to short sell the property.  Nonetheless, the Appellate Division affirmed the trial court's denial of the motion to vacate holding, among other things, that the lack of standing, even if true, was not a meritorious defense to a foreclosure complaint, particularly in the post-judgment context.  Again, the Appellate Division relied primarily on the cases included in our prior post.

When Can Foreclosing Lenders Be Accused Of Acting In Bad Faith?

 by:    Peter J. Gallagher

In a recent decision, the Chancery Division denied a lender’s motion to strike a borrower’s contesting answer in a foreclosure lawsuit, holding that the borrower had adequately pled a claim that the lender acted in bad faith.  While this decision is unique based on the facts of the underlying dispute, it does, by contrast, serve as a reminder that lenders generally cannot be held to have acted in bad faith when they simply attempt to enforce the terms of loan documents as written. 

In Wells Fargo Bank, N.A. v. Schultz, plaintiff obtained a mortgage from World Savings Bank (which later changed its name to Wachovia Mortgage, FSM, which was later acquired by and merged into Wells Fargo) under a “Pick-a-Payment” mortgage program.  Several years later, this program became the subject of a class action lawsuit, the settlement of which provided that Wells Fargo both pay class members, including defendant Schultz, a small sum and also make loan modifications available to them.  It is the second of these requirements that ended up getting Wells Fargo in trouble.  Defendant presented evidence to the court that led Judge Doyne to conclude that she was “getting the run around” from Wells Fargo, including by being told that she failed to submit documents that she certified that she had submitted, and when Wells Fargo eventually confirmed that she had submitted the documents, telling her that the modification program was no longer available.  Judge Doyne observed that defendant may not have a right to be approved for a specific modification, but that once Wells Fargo made one available to her, it was obligated to “act in good faith as to the provision of the modification.”  To be clear, Judge Doyne did not rule that Wells Fargo had acted with bad faith; instead, he simply ruled that defendant had pled enough in connection with her claims related to the modification that her answer could not be stricken. 

While this case presents a situation where a lender is alleged to have acted in bad faith after agreeing to entertain an application for a loan modification, the law in New Jersey is well settled that a lender cannot generally be deemed to have acted in bad faith when it seeks to enforce the terms of a note or mortgage as written.  Stated differently, lenders cannot be barred from enforcing loan and mortgage documents merely because they seek to enforce their express contractual rights.  Indeed, “a creditor's duty to act in good faith does not extend to foregoing its right to accelerate upon default or otherwise compromising its contractual rights in order to aid its debtor.” Glenfed Financial Corp. v. Penick Corp.   For instance, in Creeger Brick & Building Supply, Inc. v. Mid-State Bank & Trust Co., — a decision cited by the Appellate Division with approval in Glenfed — a Pennsylvania appeals court held:

. . . a lending institution does not violate a separate duty of good faith by adhering to its agreement with the borrower or by enforcing its legal and contractual rights as a creditor. The duty of good faith imposed upon contracting parties does not compel a lender to surrender rights which it has been given by statute or by the terms of its contract. Similarly, it cannot be said that a lender has violated a duty of good faith merely because it has negotiated terms of a loan which are favorable to itself. As such, a lender generally is not liable for harm caused to a borrower by refusing to advance additional funds, release collateral, or assist in obtaining additional loans from third persons. A lending institution also is not required to delay attempts to recover from a guarantor after the principal debtor has defaulted.

In other words, if the defendant in Schultz was accusing Wells Fargo of bad faith simply because the lender was seeking to enforce its rights under the plain language of the relevant note and mortgage, the result would likely have been different. 

Changing Tide In Foreclosure Litigation? Courts Taking Closer Look When Defendants Assert Lack Of Standing At Last Minute

by:  Peter J. Gallagher

In a series of recent decisions, New Jersey courts appear to be taking a stance against defendants raising, as a last-minute defense, that a party lacks standing to foreclose.  This is good news for lenders and their assignees, who, prior to these decisions, faced the prospect of proceeding to final judgment of foreclosure, only to have a party appear at the last minute, allege a lack of standing to foreclose, and send the process back to square one. 

The changing body of case law began with the Appellate Division’s opinion in Deutsche Bank Trust Company Americas v. Angeles, 428 N.J. Super. 315 (App. Div. 2013).  In that case, defendant failed to defend the action or assert a standing issue until two years after default judgment was entered and more than three years after the complaint was filed.  Id. at 316.  Interestingly, the Appellate Division acknowledged that defendant raised a valid concern about plaintiff’s standing to foreclose, but nonetheless refused to vacate final judgment.  In explaining its decision, the Appellate Division noted:

In foreclosure matters, equity must be applied to plaintiffs as well as defendants. Defendant did not raise the issue of standing until he had the advantage of many years of delay. Some delay stemmed from the New Jersey foreclosure system, other delay was afforded him through the equitable powers of the court, and additional delay resulted from plaintiff's attempt to amicably resolve the matter. Defendant at no time denied his responsibility for the debt incurred nor can he reasonably argue that [Plaintiff] is not the party legitimately in possession of the property. Rather, when all hope of further delay expired, after his home was sold and he was evicted, he made a last-ditch effort to relitigate the case. The trial court did not abuse its discretion in determining that defendant was not equitably entitled to vacate the judgment.

Id. at 320. 

 

Continue reading “Changing Tide In Foreclosure Litigation? Courts Taking Closer Look When Defendants Assert Lack Of Standing At Last Minute”

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.

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.

Time to Pay the Piper? Large Banks May Face Big Fines For Mortgage Practices

by:    Michael L. Rich

Several large banks – including Bank of America, Wells Fargo and Citigroup – warned investors on February 25, 2011 that they could face sizable financial penalties as a result of state and federal investigations into abusive mortgage practices.  These disclosures follow a furor in recent months over how residential foreclosures were being conducted.

Up until now, the fallout has mostly threatened to blemish the reputations of these big banks.  Now, it appears more may be at stake.  The disclosures, made in the banks’ annual financial filings with the Securities and Exchange Commission, suggest that serious financial consequences may be in store.

 

Continue reading “Time to Pay the Piper? Large Banks May Face Big Fines For Mortgage Practices”

Turning The Tables: Philadelphia Man “Forecloses” on Wells Fargo Branch

by:  Steven P. Gouin

During the past few years, “foreclosure” has joined the national lexicon of dirty words. Americans have grown accustomed to viewing stories about families who have fallen behind in their mortgage payments and seen their bank foreclose on their home.  In fact, over 2 million U.S. homes are currently in foreclosure, almost 3 million mortgages are at least 60 days in arrears, and close to 11 million homeowners, nearly 1 in 4, are underwater – owing more on their mortgages than their homes are worth.  Due to the recession and corresponding collapse of the housing market, there is little indication that this trend will change in the near future.

However, a Philadelphia man provided homeowners a moment of levity in an otherwise difficult situation, and just may have become a folk hero in the process, when he foreclosed on his bank.  That’s right.  Patrick Rodgers, of Philadelphia, recently obtained a judgment against Wells Fargo and ordered a sheriff’s sale of the bank’s branch office. 

When Rodgers was told he had to buy a $1 million insurance policy on his $180,000 home, he demanded to know why.  When Wells Fargo failed to provide him with a timely response, he did some research and learned that the Real Estate Settlement Procedures Act entitled him to an explanation within 20 days.  Because the bank had never answered his inquiry, Rodgers sued for damages and won a judgment of just over $1000.  Wells Fargo refused to pay, and Rodgers enforced the judgment by ordering a sheriff’s sale of his local Wells Fargo branch office.  The notice of sheriff’s sale ultimately prompted Wells Fargo to pay on the judgment, but not before news of Rodgers’s story spread and became another chapter in the ever-unfolding story of the foreclosure crisis.