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Dan Edstrom Adds His Thoughts to the 3rd DCA Opinion on the Statute of Limitations

Dan is our senior forensic analyst. His comments were right on point. It also exposes a point of vulnerability for lawyers who defend foreclosures. If the original party had no right to collect or enforce, then the notice of default and notice of acceleration are void. But then you have the issue of “apparent authority” and whether that is relevant to this chaos. Here is his message to me in its entirety:

Very interesting.  But notice the elephant in the room – that nobody is stating that the loans were actually never accelerated in the first place (by a party with a monetary interest in the loan).  How is the Judicial statute being invoked?  And/or how is the contract being invoked for acceleration?  I am not sure what the acceleration is in a judicial state like Florida, but it seems to be the action itself.  If the Plaintiff has no standing and/or is not the creditor nor their agent, the debt was never accelerated in the first place.

If I sue you in a judicial foreclosure action because I know you are late on your payments, do we have privity of contract and has your debt really been accelerated? Yes there apparently is a debt, but under what circumstances is the Plaintiff entitled to enforce the obligation and hold an interest that would allow them to accelerate the mortgage?

This is the angle of attack lawyers we are working with are using in non-judicial estates.  Not exactly the same but seems to be similar.  Non-judicial states seem to accelerate the debt with notice and reference to the never to be seen “written declaration of default and demand for sale”.  I don’t know, but I would think the Judicial Foreclosure should require the same, but I don’t really know the mechanics of how it is done in a judicial state.
It seems to me that if you are stating ” If you can prove that there was no loan at the base of the documentary chain”, that it is a natural extension to make the claim that the Plaintiff (nor their predecessors in interest) never accelerated the “debt”.
Thx,

Daniel Edstrom
DTC-Systems
Office: 916.207.6706

3rd DCA Florida Decides Statute of Limitations: Deutsch Loses

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see Third DCA – Beauvais Decision

In the Third District Court of Appeal, Florida, the Court decided Deutsch v Beauvais against the alleged “creditor” Deutsch.. Dozens of appellate decisions across the country are reversing a long-standing pattern of rubber stamping trial courts who exceeded their discretion, authority or even jurisdiction. This case affirms the trial court’s decision that the action was barred by the statute of limitations but reverses the trial court’s decision that the mortgage was null and void. How they reached this decision is going to be a matter in dispute and possibly the subject of a Florida Supreme Court decision soon.

The basic thrust of the decision is this: an unenforceable mortgage is not void. This seems counter-intuitive but it is probably correct. The effect is that the unenforceable mortgage remains as an encumbrance or cloud on title such that upon resale or refinance it might require payment to get a satisfaction or release of the mortgage, even though enforcement is barred by the statute of limitations. Other court decisions are struggling with the same issues. The effect on quiet title actions probably is that the declaration of the rights and duties of the parties includes the mortgage in the title chain and does not nullify the mortgage or remove it from the chain of title. Hence an action to nullify the mortgage would be necessary before it could be removed from the chain of title.

Using the logic from this and other cases, a homeowner cannot remove a mortgage from the chain of title by merely asserting that it is unenforceable. The flip side is that a homeowner could easily get the mortgage removed from the chain of title and to get a judgment in which title is declared free and clear of the mortgage encumbrance IF the homeowner proves that the initial transaction was a sham and that the mortgage should not have been signed or released much less recorded.

This is why the logic behind the “unfunded trust” may be crucial to removing the mortgage from the chain of title. If you can prove that there was no loan at the base of the documentary chain, then you are likely to succeed in nullifying the mortgage and then quieting title. Through discovery and deductive reasoning, it is possible to show that there was no loan of money, in FACT, at the base of the chain of documents. As a caveat, I should add that this issue is certainly not entirely resolved. There are competing decisions and views in Florida and across the country.

The basic thrust of this decision is whether the election to accelerate the entire amount due can be abandoned and thus allow future claims on future installments of the alleged loan.  The court cites AM. Bankers, 905 So. 2d 192. The hidden issue is that the association was successful in foreclosing against the homeowner and Deutsch — because there was no effort to withdraw the acceleration of the alleged loan. I think the decision ignores the doctrine of estoppel and prevents the alleged “creditor” from first exercising its “option” to accelerate and then withdrawing it when they lose the case or voluntary dismiss the case.

The court also makes a distinction between a voluntary dismissal and a judgment or involuntary dismissal with prejudice. In the first case, the court decided that the option to reinstate the later installments not barred by the statute of limitations could exist if the dismissal with prejudice, but does not exist where the option is not exercised. This adds wording to the mortgage contract and the applicable statutes. I think it is wrong.

The decision means that a “creditor” who loses or dismisses an action might be able to accelerate and foreclose multiple times until they finally win. It also introduces parole evidence into the recording process and chain of title. I agree that the mortgage is not automatically removed by losing the case. But I don’t agree that the loser can reinstate the action and sue again. It calls for the entire issue of the origination and transfer of the the alleged loan to be re-litigated. I think it conflicts with the doctrines of res judicata and collateral estoppel. The note, which is the only evidence of the debt, has been rendered unenforceable by the statute of limitations. To say that the mortgage survives as a potentially enforceable instrument on the issue of payment is illogical.

Here are some relevant quotes from the decision:

Where a lender files a foreclosure action upon a borrower’s default, and expressly exercises its contractual right to accelerate all payments, does an involuntary dismissal of that action without prejudice in and of itself negate, invalidate or otherwise “decelerate” the lender’s acceleration of the payments, thereby permitting a new cause of action to be filed based upon a new and subsequent default? [The 3rd DCA answers this question in the negative]

…because the installment nature of the loan payments was never reinstated following the acceleration, there were no “new” payments due and thus there could be no “new” default following the dismissal without prejudice of the initial action.

Smith v. F.D.I.C., 61 F.3d 1552, 1561 (11th Cir. 1995)(holding, “when the promissory note secured by a mortgage contains an optional acceleration clause, the foreclosure cause of action accrues, and the statute of limitations begins to run, on the date the acceleration clause is invoked.”).

The supreme court disapproved of the holding in Stadler and approved the Fourth District’s holding in Singleton:

We agree with the reasoning of the Fourth District that when a second and separate action for foreclosure is sought for a default that involves a separate period of default from the one alleged in the first action, the case is not necessarily barred by res judicata. [Editor’s Note: I think the court ignored the difference between the intention and effect of a statute of limitations and the doctrine of res judicata.]

In Singleton, the dismissal with prejudice disposed not only of every issue actually adjudicated, but every justiciable issue as well. Hinchee v. Fisher, 93 So. 2d 351, 353 (Fla. 1957), overruled in part on other grounds, May v. State ex rel. Ervin, 96 So. 2d 126 (Fla. 1957). In Hinchee, as in Singleton and Stadler, the trial court dismissed an initial action with prejudice. Hinchee, 93 So. 2d at 353. This operated as an adjudication on the merits and, as a general proposition for purposes of res judicata, “puts at rest and entombs in eternal quiescence every justiciable, as well as every actually adjudicated, issue.” Id. (quoting Gordon v. Gordon, 59 So. 2d 40, 43 (Fla. 1952)). As the Court observed in Hinchee:

A judgment on the merits does not require a determination of the controversy after a trial or hearing on controverted facts. It is sufficient if the record shows that the parties might have had their controversies determined according to their respective rights if they had presented all their evidence and the court applied the law.

Res judicata is not the issue in the instant case because the dismissal of the Initial Action was without prejudice, and therefore the borrower here (unlike the borrower in Singleton) did not “prevail in the foreclosure action by demonstrating that she was not in default” nor was there “an adjudication denying acceleration and foreclosure” such that the parties “are simply placed back in the same contractual relationship with the same continuing obligations.” Id.

the only subsequent cause of action which Deutsche Bank could file under the circumstances was an action on the accelerated debt— it could not thereafter sue upon an alleged “new” default because, without reinstating the installment terms of the repayment of the debt, there were no “new” payments due, [e.s.]

Without a new payment due, there could be no new default, and therefore no new cause of action. Because the Current Action was based upon the very same accelerated debt as the Initial Action, and because that Current Action was filed after the expiration of the five-year statute of limitations, it was barred.5

We acknowledge that Singleton has been applied to permit, as against an

asserted statute of limitations bar, the filing of a subsequent action following

dismissal with prejudice (i.e., an adjudication on the merits) of an earlier action.

See 2010-3 SFR Venture, LLC. v. Garcia, 149 So. 3d 123 (Fla. 4th DCA 2014);

Star Funding Solutions, LLC. V. Krondes, 101 So. 3d 403 (Fla. 4th DCA 2012); );

U.S. Bank Nat. Ass’n. v. Bartram, 140 So. 3d 1007 (Fla. 5th DCA 2014) review

granted, Bartram v. U.S. Bank Nat. Ass’n, Nos. SC14-1265, SC14-1266, SC14-

1305 (Fla. Sept. 11, 2014); PNC Bank, N.A., v. Neal, 147 So. 3d 32 (Fla. 1st DCA

2013). We believe our holding is not necessarily inconsistent with the strict

holdings of these cited cases, as each of them involved a dismissal of the earlier

action with prejudice, representing an adjudication on the merits and, at least

implicitly, a determination that there was no default and therefore no valid or

effectual acceleration. [ I think the court is struggling to justify its decision]

UNFUNDED TRUSTS: WHY IT MATTERS

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On tonight’s show we will talk about the alleged trusts that allegedly own the loans. In most cases, they do not own the loan nor do they represent the interests of the owners. The owners of the DEBT are the investors who advanced money to the investment bank that sold mortgage bonds to the investor (pension fund). There are two main reasons why this is important:

  1. An unfunded trust has no money to buy or originate loans. Therefore it is an improper party to bring any action to collect or enforce the debt. This is especially true when the unfunded trust has no legal claim to enforce the loan on behalf of the owners. The REMIC Trust should not be allowed to cause a foreclosure, or interfere with the rights of borrowers and investors. Its “servicers” have no right to collect money and when they do collect money from the borrower, they owe the money back to the borrower who paid it to the servicer. This has been discussed in cases highlighted on this blog over the last week.
  2. The unfunded trust is evidence of a fraudulent scheme in which the investors (pension funds) were tricked into advancing money to an investment bank who then misused the money, didn’t deliver it to the trust that issued the mortgage bonds that were sold, and then acted as a conduit between the investors and the borrowers — without either one knowing what was really happening. In a foreclosure, this means that the alleged enforcement of the loan is really furtherance of the fraudulent scheme against investors. Raising this issue does NOT mean there is no debt. It means, in most cases, that foreclosure is not an option because the perpetrators of the fraud and the initiators of the collection and enforcement of the alleged “loan” are one and the same. Hence the Court SHOULD be interested in not being part of a fraudulent scheme. It is a classic case of unclean hands.

The issue is proof and mores specifically the willingness of the court to let you prove your case. This comes down to pleading, discovery, motions to compel that spell out your narrative for the case and investigation through forensic auditors and private investigators. Unfunded REMIC Trusts represent a potential attack against the party initiating foreclosure that can be fatal to their claim if properly presented.

As a general observation these attacks are met with claims of presumptions when dealing with negotiable paper, and the claim that the borrower has no standing to raise the issue. But the borrower clearly does have standing to raise the issue if the borrower is claiming return of all money paid and claiming that the foreclosure action is part of a fraudulent scheme to the detriment of the real creditor and the detriment of the borrower, both of whom under Federal Law are required to pursue options for modification or settlement.

And the legal presumptions only apply to paper that is truly negotiable and where there is no evidence of trustworthiness or lack of credibility. The recent transfers from Chase and other entities to SPS are not really transfers of servicing rights. The “loan” is clearly already declared to be in default — making the claim of negotiable paper (and the presumptions) moot. So the entrance of SPS or another “servicer” under these circumstances is just another layer to fool the court and the borrower.

They are merely hiring SPS to

(a) enforce, because SPS is not processing payments from the borrower nor making payments to the investors (that is done by Chase or whoever is the the named servicer in the PSA) and

(b) create the illusion of business records by having an SPS representative testify that the business records of SPS should be admitted because SPS examined the prior records of the prior servicers and found them to be correct in what they call a “boarding” process. This is a blatant attempt to circumvent the rules of evidence. Both the attempt at creating legal presumptions regarding the note and mortgage and the attempt to use the business records of an “enforcer” posing as a “servicer” should be rejected.

THIS ARTICLE IS MY OPINION AND SHOULD NOT BE USED AS A SUBSTITUTE FOR THE ADVICE FROM AN ATTORNEY LICENSED TO PRACTICE IN THE JURISDICTION IN WHICH YOUR PROPERTY IS LOCATED.

BOA Ordered to Pay $1 Million to Homeowner for Robo-Calls

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Just back from Orlando where I had a 4 hour trial scheduled for five minutes. Of course nobody except the court knew that. Needless to say the trip to Orlando was a bust. Neither counsel — Plaintiff and Defendant — was pleased. The system is badly in need of change. Now we are told that it might be 2016 until we get a judge who can give us 4 hours.

Meanwhile, the Orlando Sentinel reports that Florida is back to #1 in foreclosures, even though major “lenders” are giving people a “break” from wrongful foreclosures by not pursuing evictions during the holidays. see http://www.orlandosentinel.com/business/os-orlando-foreclosures-december-20141210-story.html

But in the meanwhile, BOA and Ocwen has been cited for not following the rules of the “settlements” that stopped criminal and civil prosecutions from the US Department of Justice. see BOA Fails tests: They still don’t care if the foreclosures are wrongful. Both BOA and Ocwen are citing computer problems as the cause of their multitude of violations. see mortgage-deal-monitor-ocwen-review-may-flawed-171850867–finance.html

MOST INTERESTING ABOUT THE OCWEN SITUATION IS THE ADMISSION THAT THEY GENERATED DEFAULT LETTERS WITH THE “WRONG DATE.” this is an admission that their computer was backdating documents “accidentally.” If that were true, where are the random mistakes  being made where homeowners didn’t get a letter or received a letter that was post-dated?

The fact is simple. The “banks” are pursuing foreclosure for reasons other than the loan, the note, the debt the mortgage or to mitigate damages. They are breaking the back of neighborhoods because they want the foreclosure judgment and sale. THAT is the only thing that MIGHT keep them out of hot water — i.e., the liability for refunds and buy-backs of loans that were entirely and fatally defective.

This also reveals how the parties pursuing foreclosure are NOT doing for the creditors (investors) but rather doing it for themselves to the detriment of both the creditors and the debtors. How many of those houses would still be occupied and paying taxes, paying a mortgage payment and keeping the neighborhood alive if a workout had been pursued in earnest?

BOA has been ordered to pay $1 million to a couple who received about 1,000 calls from a robo-calling center regarding their mortgage. This might wake up lawyers who are looking for a big payday. A lawyer who takes such a case on contingency need not litigate the merits of the mortgage or the foreclosure, but merely sue for violation of the fair debt collection laws. See CNBC: BOA Ordered to Pay $1 Million to Homeowner

More bad news for cities who built up infrastructure to accommodate all the new housing in the bubble caused by Wall Street. Experts who are conducting reviews and investigations for local government are all coming to the same conclusion: the only thing to do is demolish the homes that were foreclosed. This again leads to the as yet unanswered question: Why would REAL LENDERS pursue foreclosure on a home they don’t want, won’t keep or even sell? see http://www.wset.com/story/27646534/danville-council-hears-housing-study-findings

Tom Ice Wins Appeal To Supreme Court on Local Rules

See Tom Ice Wins His Point: Local Rules Deeming Motions “Abandoned” Are Not Valid

Tom has been getting into the murky world of what is agreed or known between Judges that administer foreclosure actions. One such problem is the local rule in some jurisdictions that certain motions are deemed abandoned regardless of what applicable legislation or Supreme Court Rules of Court provide.

Ice is pursuing an attack mode that is right on target. The underlying theme of his challenges is simple — a party should not be able to declare itself a lender or creditor and win a case that it would lose if the case was tried properly. One of the ways that homeowners have lost cases is the application of this rule that the Supreme Court has struck down. The court basically said “We make the rules and this is not our rule.” Local rules are allowed as to clerical functions but not substantive rulings on procedure or the merits.

Trial judges have “moved” their cases by applying rules like this that prevent the movant homeowner from requiring a ruling from the court. The judges under the cloak of apparent legality cite to the local rule that prevents the motion from being heard.

This is important because when cases go to trial, frequently the court has not heard several motions and if they are still “outstanding” the case is not ready for trial. So if the court goes forward with trial by “dismissing” the right to be heard on homeowner’s motions it is breaching the rules of court promulgated by the Florida Supreme Court and obviously due process requirements in the Florida and Federal Constitution.

 

My Apologies to Listeners of the Neil Garfield Show

The show was canceled at the last minute because of an unscheduled appointment I had with a kidney stone. I am fine now.

Wisconsin BKR Judge Orders Wells Fargo to Disgorge Payments It Received

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Hat tip to anonymous

The full case was 25 pages, I redacted to about 4 below, but very substantial topics and analysis on this similar to Rivera in full version.
– A win on recovery of mortgage payments made to Wells, $73,000.
– Loss on recovery of attorneys fee’s to Debtor, BUT, court stated these would be proper if circumstances met criteria, just not here, and
Very interesting analysis on return of note, which backs up your prior analysis; Note will not be returned to Debtor, as even though note is not enforceable by Wells or its servicers, real party in interest may show up at some point. Debtor also did not point to any prior case law that would require return of note.

I question whether the bankruptcy judge had the required jurisdiction to enter this order in all respects. But the analysis he presents is pretty much on target and once again Wells Fargo is shown to be making false statements and representations in court with virtual immunity even in this case.

Decision dated 10/21/14
http://stopforeclosurefraud.com/wp-content/uploads/2014/12/2014-10-21-In-Re-Thompson-.pdf

UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF WISCONSIN

In re Chapter 13 Dennis E. Thompson and Pamela A. Thompson, Case No. 05-28262-svk Debtors.

MEMORANDUM DECISION ON DEBTORS’ MOTIONS FOR CERTAIN RELIEF AGAINST WELLS FARGO

Since this case’s inception in 2005, it has been fraught with litigation, failed mediations, discovery disputes, accusations of attorney misconduct and otherwise tumultuous actions. In 2013, these proceedings eventually culminated in this Court’s disallowance of the proof of claim filed on behalf of Wells Fargo Bank after it was established that Wells Fargo was not the holder of the mortgage note underlying the claim. As a result, the pro se debtors filed a flurry of motions to effectuate the claim disallowance decision. This memorandum decision will hopefully end the litigation concerning the mortgage note, at least in the bankruptcy court………………

……..“On January 12, 2006, the Court confirmed the Debtors’ Chapter 13 plan. Under the plan, the Debtors proposed to make direct current mortgage payments and cure their pre-petition mortgage arrearage via payments to the trustee. On June 27, 2011, the Debtors filed a motion to enter into the Court’s mortgage modification mediation program with Litton. (Docket No. 142.) In preparation for the mortgage mediation, the Debtors hired an attorney and conducted a title search on their property. (Hearing Recording, Docket No. 164, at 10:53:15.) The title search revealed that Wells Fargo did not hold the title to their mortgage. (Id.) Mediation attempts with both Litton and Ocwen Loan Servicing, LLC4 (“Ocwen”), the current servicer for Wells Fargo, failed. (Docket No. 168; Docket No. 213.) On March 19, 2012, the Debtors filed a motion that the Court construed as an objection to the Claim. (Docket No. 159.) On April 2, 2012, Ocwen responded to the objection. After several preliminary hearings, discovery disputes, and a final evidentiary hearing, the Court entered an order disallowing the Claim. (Docket No. 217, 5.) The Court determined that neither Wells Fargo nor its servicers had standing to file a claim in the Debtors’ bankruptcy case. (Id.) Wells Fargo appealed. U.S. District Judge J.P. Stadtmueller affirmed the Court’s decision to disallow Wells Fargo’s Claim, holding:

“[E]ven if each version of the note self-authenticates under FRE 902(9), without testimony or other evidence from Ocwen to “‘connect the dots’” between the disputed allonge and the note, the evidentiary record contained only equally probable “authentic” versions of the note countervailing one another. Against that evidentiary backdrop, the bankruptcy court committed no error in finding insufficient evidence to confer standing on Ocwen to prosecute the disputed proof of claim.

Ocwen Loan Servicing, LLC v. Thompson, No. 13-CV-487, 2014 U.S. Dist. LEXIS 2109, at *14- 15 (E.D. Wis. Jan. 7, 2014).

Prior to the district court decision, the Debtors filed motions for reimbursement of mortgage payments (Docket No. 222) and attorneys’ fees. (Docket No. 223.) The Court entered an order determining that no action would be taken on the Debtors’ motions until after the district court entered a final order in the appeal. (Docket No. 225.) After the district court decision, the Debtors filed a motion to require the return of the original note to them. (Docket No. 239.) The Court set a briefing schedule. The parties have filed briefs. The motions are now ripe for decision.

 

ANALYSIS

Reimbursement of Mortgage Payments made on Disallowed Claim

Based on the disallowance of the Claim, the Debtors request a refund of all mortgage payments and trustee payments made to Litton and Ocwen since their bankruptcy case was filed in 2005. (Docket No. 222, 1.) Arguing that they “have every legal right to believe that they were or should have been paying the proper party,” (Id.), the Debtors calculate that a total of $146,972.45 should be reimbursed to them. (Docket No. 257, 4.) This amount includes $21,587.64 for “lost mortgage payments,” $106,167.91 for mortgage payments made outside the plan from July 2005 to December 2011, $11,716.90 for disbursements made by the Chapter 13 trustee on the disallowed Claim, and $7,500.00 for “return of sanction.”5 (Id.)

Wells Fargo raises only two objections to the Debtors’ motion for a refund of mortgage payments. First, Wells Fargo contends that the Court previously denied this motion at the March 14, 2013 hearing on the Debtors’ objection to Wells Fargo’s Claim……………….”

Second, Wells Fargo argues that the Court must balance the equities under the circumstances.6 Wells Fargo notes that Ocwen and Litton both expended funds during the course of the bankruptcy to prevent the Debtors’ property from going into tax foreclosureWells Fargo also argues that the Court’s decision disallowing the Claim did not alter the fact that the “Debtors borrowed money on April 14, 2000, and have yet to repay their debt,” and “[u]nder the circumstances, it would be inequitable to require Ocwen to take yet another loss on this account.” (Id. at 5-6.)

“The Court rejects Wells Fargo’s attempt to characterize the Court’s comments at the March 13, 2013 hearing as a definitive ruling on whether Wells Fargo should have to refund the payments it received from the Debtors during the bankruptcy case…………..

Wells Fargo’s second argument requests that the Court balance the equities under the circumstances. Wells Fargo cites one case to support its position, which notes that “[c]ourts exercising equitable powers must behave akin to doctors operating under the Hippocratic Oath: first, do no harm. We must do equity to all parties and not just the party seeking equitable assistance . . .” Briarwood Club, LLC v. Vespera, LLC, 2013 WI App 119, ¶ 1, 351 Wis. 2d 62, 839 N.W.2d 124. Wells Fargo suggests that if the Court grants the Debtors’ request, the Debtors will gain a free house. It notes that the Debtors borrowed money that they have not fully repaid, and as long as they are not required to repay it twice, the Debtors are obligated under the mortgage note. (Docket No. 246, 6.) Wells Fargo explains that while it may not have legal enforcement power under Wisconsin law, it does still hold physical possession of the note. (Id.)

And, according to Wells Fargo, since there have not been any competing claims for repayment on the loan, it would be inequitable for the Court to require Wells Fargo to take another loss on this delinquent account. (Id. at 7.)

A similar argument was made and rejected in Thomas v. Urban P’ship Bank, Residential Credit Solutions, Inc., 2013 U.S. Dist. LEXIS 59818 (N.D. Ill. April 26, 2013). In that case, Barbara Thomas filed suit against Urban Partnership Bank, alleging that Urban sought payments on a mortgage loan that it did not own. The central issue involved whether Thomas’s mortgage loan was included in an asset purchase agreement executed between Urban and Thomas’s original lender, ShoreBank. Urban moved to dismiss the complaint, arguing among other theories that there were no competing claims for payment on the note. But Thomas’s unjust enrichment claim survived the motion to dismiss. According to the district court:

Thomas clearly alleges that she owes someone money under the mortgage loan and that that someone is not Urban, and so it is irrelevant that no one else is currently making claims to her mortgage payments. If Thomas is correct that she owes money to someone other than Urban, then by paying Urban she has lost money without reducing the debt she owes to the loan’s true owner. . . . That amounts to the enrichment of Urban to Thomas’s detriment, since Thomas has lost and Urban has gained money for nothing . . . If, as Thomas adequately alleges, Urban had no right under the mortgage loan to the payments it received and Thomas made the payments on the mistaken premise that Urban was the loan’s owner, then fundamental principles of justice, equity, and good conscience require that Urban disgorge the payments . . . .

Id. at *27-29 (internal citations and quotations omitted).8

The district court in Thomas relied on Bank of Naperville v. Catalano, 86 Ill. App. 3d 1005, 408 N.E.2d 441, 444, 42 Ill. Dec. 63 (Ill. App. 1980), in which the court held,

“As a general rule, where money is paid under a mistake of fact, and payment would not have been made had the facts been known to the payor, such money may be recovered.”

The court also cited the Restatement (Third) of Restitution and Unjust Enrichment § 6 (2011) “Payment of Money Not Due” to the effect that payment by mistake gives the payor a claim in restitution against the recipient to the extent payment was not due, and a payor’s mistake as to liability may be a mistake about the identity of the creditor. The Restatement discusses two examples of payment by mistake that may be applicable here: mistake as to payee and mistake as to liability.9 Under mistake as to payee, the Restatement notes that “[a] mistaken payor has a claim in restitution when money is mistakenly transferred to someone other than the intended recipient.”…………..

Under mistake as to liability, the Restatement states that “[a] payor’s mistake as to liability may be a mistake about the identity of the creditor. In such a case, the payor believes that an obligation runs to the payee when in fact the obligation is to someone else.” The latter example applies here.10 The Debtors mistakenly believed that Wells Fargo was entitled to enforce the mortgage note. Wells Fargo’s servicers filed proofs of claim in the bankruptcy case, and they directed the Debtors to send their mortgage payments to Wells Fargo, in care of the servicers. The servicers accepted the Debtors’ mortgage payments on behalf of Wells Fargo, when in fact, Wells Fargo did not validly hold the mortgage note, and Wells Fargo was not entitled to the payments.

Although Wells Fargo has responded to the Debtors’ request for a refund with a plea for equity,11 in fact, the equities here favor the Debtors.

“A claim for unjust enrichment is based on the “universally recognized moral principle that one who received a benefit has the duty to make restitution when to retain such a benefit would be unjust.” Puttkammer v. Minth, 83 Wis. 2d at 689 (quoting Fullerton Lumber Co. v. Korth, 37 Wis. 2d 531, 536 (Wis. 1968))…..

 However, it is not enough to merely establish that a benefit was conferred and retained; the retention must also be inequitable. Id. This Court previously determined that Wells Fargo is not the holder of the Debtors’ mortgage note with legal authority to enforce it; that determination was affirmed on appeal. Without authority to enforce the note, Wells Fargo is not entitled to receive payments under the note. Only the party with a legally enforceable right to enforce the note is entitled to retain the benefit of the Debtors’ mortgage payments. Nevertheless, Wells Fargo, through its servicers, received voluntary payments from the Debtors and payments from the Trustee since the commencement of this bankruptcy case, subjecting the Debtors to the possibility of having to pay twice if the true owner of the note appears. Since Wells Fargo and its servicers have no legal right to the Debtors’ mortgage payments, retention of the Debtors’ mortgage payments would be inequitable.

 

Adding all of the entries for “payment” shows that the Debtors paid $97,979.68 from February 2006 to July 2011. (Docket No. 211, Ex. 11).12 Additionally, Wells Fargo should credit the Debtors with $7,500 for the sanctions awarded in the prior claim objection proceeding. (See Docket No. 103, at 10), for a total of $105,479.68. Wells Fargo points out that it made real estate tax payments on the Debtors’ behalf that should be deducted from any refund claim. The Court agrees. After subtracting $32,438.19 for the tax payments made on the Debtors’ behalf, the Debtors’ total claim for unjust enrichment is $73,041.49. Under the circumstances, Wells Fargo should be required to return this amount to the Debtors to avoid being unjustly enriched………….

Attorney Fee’s

“The Debtors also filed a motion for attorneys’ fees, arguing that Wells Fargo should pay approximately $12,500 in fees and costs the Debtors expended in connection with the failed mediations with Litton and Ocwen. According to the Debtors, “[u]nnecessary protracted negotiations have been ongoing since 2010. Starting with Litton Loan and ending with Ocwen. The plaintiff has misrepresented their standing, despite the efforts of the debtors to discuss this matter in the mediation process.” (Docket No. 223 at 1-2.) The Debtors also request punitive damages under 28 U.S.C. § 1927 for “vexatious litigation conduct” by Litton and Ocwen. (Id. At 2.) They note that Litton failed to attend several scheduled mediation sessions, and when Ocwen reinitiated mediation proceedings in 2012, there was a “delay to the debtors of 6 hours in the first and only scheduled mediation, with the debtors believing that progress was being established.”……………………… Although the Debtors have the right to be disappointed that the mediation did not succeed despite the attorneys’ fees that the Debtors expended, Wells Fargo’s attorneys acted under the impression that their client had proper standing. The Court finds that Wells Fargo’s attorneys did not unreasonably and vexatiously multiply the proceedings by their conduct in this case, and the Debtors’ request for attorneys’ fees is denied.

Request for Return of Note

The Debtors’ final motion asks the Court to order Wells Fargo to turn over the original mortgage note to them. Despite the Court’s ruling that Wells Fargo cannot enforce the note, the Debtors are concerned that Wells Fargo will somehow sell, transfer or trade the note, subjecting the Debtors to further litigation, emotional distress and financial hardship. Wells Fargo responds by attempting to discern the legal theories under which the Debtors are attempting to proceed, and then casting aspersions on those theories. The Court generally agrees with Wells Fargo that the Debtors could not succeed on a replevin claim or turnover action based on the note as property of the bankruptcy estate. However, the theory that the surrender of the original note consequently follows from the disallowance of Wells Fargo’s Claim warrants further analysis. The Court also takes this opportunity to clarify that, while not “undoing” any part of the Foreclosure Court’s judgment, Wells Fargo’s ability to enforce that judgment was never finally determined by the Foreclosure Court, and the disallowance of Wells Fargo’s Claim on standing grounds strongly suggests that Wells Fargo has no such ability………………..

Neither the Debtors nor Wells Fargo cited any case law supporting their position on whether the note should be returned to the Debtors after disallowance of the Claim, and the Court’s independent research uncovered no case directly on point…………………..Here, while the validity of the note and mortgage in favor of Provident was actually litigated and determined in the Foreclosure Case, Wells Fargo’s substitution as the plaintiff was summarily ordered without notice to the Debtors or any hearing on the issue. The Debtors were not afforded a reasonable opportunity to obtain review of the substitution order before the automatic stay intervened. That the party sought to be precluded had a reasonable opportunity to obtain review of the prior court’s order is a basic premise of the fundamental fairness prong of the issue preclusion analysis. Id. This Court previously denied Wells Fargo’s attempt to establish its standing to file the Claim based on the judgment and order of substitution in the Foreclosure Case. For the same reasons, issue preclusion does not act to bar the Debtors’ claim for return of the note……………..

“The court agreed with other courts that simply because a creditor lacks standing to enforce a note, the debtor is not discharged of her obligations under the note. Id. This Court has concluded (and the district court on appeal agreed) that Wells Fargo is neither the holder of the note nor a nonholder in possession of the instrument with the rights to enforce it. (Docket No. 233, 11.) Therefore, Wells Fargo (and its affiliates, servicers, successors and assigns) cannot enforce the note, but that fact does not cancel the note nor discharge the Debtors’ obligations to the true owner. In the absence of any authority for their request for turnover of the original note and analogizing to the cases requesting dismissal with prejudice, the Debtors’ motion to require Wells Fargo to surrender the original note is denied….

CONCLUSION

The Debtors’ motion for reimbursement of the payments made on Wells Fargo’s disallowed Claim is granted, subject to offset for real estate taxes paid by Wells Fargo. Within 30 days of the date of this Order, Wells Fargo must pay $73,041.49 to the Debtors and $11,716.90 to the Chapter 13 trustee. The Debtors’ motions for reimbursement of attorneys’ fees and turnover of the original note are denied. The foregoing constitutes the Court’s findings of fact and conclusions of law. The Court will enter separate orders on each motion.

Dated: October 21, 2014

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