Litigation Forum - Litigation Involving Servicing

MBA Regulatory Compliance Conference / September 2011

Standing, Affidavits & Other Procedural Challenges

Leah Getlan Assistant General Counsel Capital One

Introduction
RealtyTrac reports August 2011 as 11th consecutive month of year over year activity decrease in foreclosures August foreclosure filings down 33% from previous year But uptick in mortgage defaults overall, and first time default notices at nine month high last month (up 33% from previous month) Are Lenders Starting to Push Through After Foreclosure Delays? How Will This Affect Litigation Volume?

Introduction
Passing the SATs

Standing Affidavits Technical Violations of State Law

Standing
Lender or Assignee Must Prove Ownership or Possession of the Note to Bring Foreclosure Action Complications: MERS Defective Assignments Lost Notes / Assignments Pooling and Servicing Agreements / Securitizations
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Standing
U.S. Bank National Association v. Ibanez (Mass. Jan. 7, 2011) Foreclosure sale void where securitization trustee cannot provide valid assignment of loan pre-foreclosure Securitization agreement / executed purchase & sale agreement with related schedules attached can establish right to foreclose, even if no recordation in land records

Standing
US Bank v. Congress (Cir. Ct. Ala., Feb. 23, 2011) Trustee of securitized trust has standing to bring foreclosure if it holds the Note; party does not have to own the Note to have standing Listing of loan on PSA schedules evidence that loan transferred timely into trust Borrower does not have standing to invoke PSA choice of law provision

Standing
Deutsche Bank National Trust Co. v. Mitchell (N.J. Super. App. Div, Aug. 9, 2011)

Foreclosing Plaintiff lacked standing when it initiated foreclosure action one day before it took assignment of the mortgage Amended pleading could not cure standing defect Must own or possess the note to have standing

Standing - MERS
Cervantes v. Countrywide Home Loans Inc, et al. (9th Cir. (Ariz.), Sept 7, 2011)
9th Circuit affirmed dismissal with prejudice of putative class action against MERS for conspiracy to commit fraud Security Instrument discloses the role and rights of MERS and plaintiff signed the contract and agreed to terms

Borrowers suffered no injury as a result of MERS as beneficiary (e.g. terms of loan, ability to repay or ability to modify loan terms)
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Standing - MERS
Jenkins v. McCalla Raymer (N.D. Ga., Aug. 31, 2011) Court dismissed putative class action and rejected theory that MERS assignment of SIs fraudulent Henderson v. MERS (Ala. , Sept. 9, 2011) As mortgagee and nominee of the originating lender, MERS has legal right to enforce terms of the mortgage, including foreclosure rights
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Standing - MERS
Dallas County v. Merscorp Inc., et al (Dallas County, TX) Lawsuit brought by Dallas County D.A. alleging MERS tracking system violates Texas law BofA sued as shareholder of MERS for allegedly knowing the system would cause improper filing in Texas Residential Funding Co. LLC v. Saurman (Mich. App., April 21, 2011) MERS cannot foreclose by advertisement under Michigan law because it did not own the requisite interest in the debt Contractual provisions providing right to foreclose to MERS could not override state law requirements 10

Affidavits

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Affidavits
Witnesses must have knowledge of the facts to which they are attesting Assertions should be supported by the evidence Complications: Overuse and inappropriate use of phrase personal knowledge Delegated review of business records & account information Missing or defective documentation Delegated signatories
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Affidavits
Glarum v. LaSalle Bank, N.A. (Fla. 4th DCA, Sept. 7, 2011) Servicers foreclosure affidavit containing payment information from prior servicer constituted inadmissible hearsay Business records exception to hearsay did not apply where affiant did not know who how or when data entries made and could not verify that the entries were correct

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Affidavits
Deutsche Bank National Trust Company v. Hansen (Ohio App., March 10, 2011)
Foreclosure affidavit confirming unpaid balance and interest rate and attaching screen shot from system did not meet business records exception to hearsay where affiant did not know who entered information into system and how the information was collected and compiled To authenticate business records must be sufficiently familiar with business operations and circumstances of records preparation, maintenance & retrieval
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Other Issues & Challenges

Vacant Property Laws & Lawsuits
City of LA v. Deutsche Bank City of Chicago vacant property bill

Foreclosure Prevention Mediations

Pasillas v. HSBC Bank USA Sanctions appropriate against lender for failure to strictly comply with Foreclosure Mediation Program requirements regarding documentation and personal attendance by someone authorized to modify loan

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FDCPA Case of Note

Atwood v. Johnson, Rodenburg & Lauinger, PLLP (D. Minn, August 1, 2011)
Class cert denied in lawsuit claiming second collection letter demanding immediate payment sent after debt validation letter violated FDCPA by overshadowing right to challenge validity of the debt Court found individual question existing as to when second letter received by each borrower

Plaintiff failed to meet Rule 23(b)(3) because based on estimated size of class and FDCPA limit for class recovery, individual borrowers could recover $1000 statutory damages plus actual damages individually vs. $7.43 as a class
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Tips From The Trenches

Get it right from the beginning

Bad facts make bad law - Dont litigate with bad facts

Have witnesses personally review loan level data, understand where it comes from & be comfortable with the facts

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Tips From The Trenches

Fully Engage in Loss Mitigation Discussions Early To Avoid Unnecessary Delays & Costs Document The Process Set Firm Deadlines and Expectations Always keep long term goals and the big picture in mind

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Tips From The Trenches Hold high standards for foreclosure, eviction & bankruptcy proceedings
Expediency should not be the only priority dont let the need for speed cloud judgment Your reputation is on the line always

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