Federal Judge Slams Wells Fargo for Violation of Debt Collector’s Act in Florida

 

EDITOR’S NOTE: this is why I am encouraging attorneys to take cases involving foreclosure, even if the foreclosure itself is problematic. The FDCPA federal counterpart essentially states the same rules. These cases allow for damages and recovery of attorney fees that might aid in the cost of protracted litigation by a pretender lender. Most of my clients are receiving these contacts even after they have expressly told the caller that they are represented by counsel and even that there is a lawsuit pending. I would add that there is clearly a question as to whether the offer of modification is an admission against interest that the loan is in default and that therefore the current “default” is waived.

Danielle Kelley of our firm Garfield, Kelley and White has been writing about this for some time. She firmly believes, and I agree with her, that the time has come to file these actions. I would suggest that a debt validation letter be sent under the FDCPA and that the “borrower” obtain a title and securitization report as well, in order to shore up the potential setoffs and counterclaims against the pretender lender. But the good part of this law is that even if the caller is in fact the true lender or creditor, they must follow the rules — or pay the penalty.

2013 U.S. Dist. LEXIS 172716, *


ANDREW CONKLIN, Plaintiff, v. WELLS FARGO BANK, N.A., Defendant.

Case No. 6:13-cv-1246-Orl-37KRS

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF FLORIDA, ORLANDO DIVISION

2013 U.S. Dist. LEXIS 172716

December 8, 2013, Decided
December 9, 2013, Filed 

CORE TERMS: collection, mortgage, debt-collection, phone, cell, collect a debt, telephone, solicitations, exemption, consumer, foreclosure, landline, factual allegations, security interest, express consent, prerecorded, foreclose, servicer, exempt, foreclosure action, emergency calls, business relationship, cellular phones, telephone-solicitation, categorically, communicate, pre-suit, exempted, notice

COUNSEL:  [*1] For Andrew Conklin, Plaintiff: Richard S. Shuster, LEAD ATTORNEY, Shuster & Saben, LLC, Satellite Beach, FL.

For Wells Fargo Bank, N.A., a foreign corporation, Defendant: Aaron S. Weiss, LEAD ATTORNEY, Carlton Fields, PA, Miami, FL; April Y. Walker, LEAD ATTORNEY, Carlton Fields, PA, Orlando, FL; Michael Keith Winston, LEAD ATTORNEY, Carlton Fields, PA – West Palm Beach, West Palm Beach, FL.

JUDGES: ROY B. DALTON, JR., United States District Judge.

OPINION BY: ROY B. DALTON, JR.

OPINION

ORDER

This cause is before the Court on the following:

1. Plaintiff’s Complaint (Doc. 2), filed August 15, 2013;

2. Defendant Wells Fargo’s  Click for Enhanced Coverage Linking SearchesMotion to Dismiss Plaintiff Andrew Conklin’s Complaint and Supporting Legal Memorandum (Doc. 12), filed August 28, 2013; and

3. Plaintiff Andrew Conklin’s Response to Motion to Dismiss (Doc. 18), filed September 23, 2013.

Upon consideration, the Court finds that Defendant’s motion is due to be denied.

BACKGROUND

Defendant is the loan servicer on Plaintiff’s mortgage. (Doc. 2, ¶ 4.) In 2010, Defendant sued Plaintiff to foreclose on his house. (Doc. 18, p. 1.) Defendant allegedly continued to communicate about the foreclosure directly to Plaintiff after he was represented by counsel; this led Plaintiff  [*2] to file a previous Florida Consumer Collection Practices Act (“FCCPA”) claim against Defendant. (Id. at 1-2.) That case later settled. (Id. at 2.)

Then, earlier this year, Defendant allegedly resumed calling Plaintiff’s cell phone. (Doc. 2, ¶¶ 16-18.) After one of the calls, Defendant left a voicemail stating: “This is . . . your mortgage servicer, calling in regards to your mortgage. . . . This is an attempt to collect a debt . . . .” (Id. ¶ 16.) Plaintiff accordingly filed this suit in state court, alleging that Defendant has violated the FCCPA and the Telephone Consumer Protection Act (“TCPA”). (Id. ¶¶ 10-26.) Defendant removed the case to this Court on the basis of federal-question jurisdiction. (Doc. 1.)

Defendant now moves to dismiss the Complaint, arguing that it fails to state either an FCCPA or a TCPA claim. 1 (Doc. 12.) Plaintiff opposes. (Doc. 18.) This matter is ripe for the Court’s adjudication.

FOOTNOTES

1 Defendant also argues that Plaintiff failed to give pre-suit notice, which was allegedly required by Plaintiff’s mortgage. (Doc. 12, pp. 2-4.) First, this suit is about the calls, not the mortgage; thus, the mortgage is not “central” to the Complaint, and the Court declines to consider  [*3] it at the motion-to-dismiss stage. See Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005). Second, the Court is skeptical that a contractual requirement of pre-suit notice to allow the other party an opportunity to cure a breach is applicable to this action, which is not on the contract itself. Nevertheless, because the Court declines to consider this argument now, it will not preclude Defendant from raising it at a later point.

STANDARDS

A plaintiff must plead “a short and plain statement of the claim.” Fed. R. Civ. P. 8(a)(2). On a motion to dismiss, the Court limits its consideration to “the well-pleaded factual allegations.” La Grasta v. First Union Sec., Inc., 358 F.3d 840, 845 (11th Cir. 2004). The factual allegations in the complaint must “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). In making this plausibility determination, the Court must accept the factual allegations as true; however, this “tenet . . . is inapplicable to legal conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009). A pleading that offers mere “labels and conclusions” is therefore insufficient. Twombly, 550 U.S. at 555.

DISCUSSION

I. FCCPA

The  [*4] FCCPA provides that “[i]n collecting consumer debts, no person shall . . . [c]ommunicate with a debtor if the person knows that the debtor is represented by an attorney with respect to such debt . . . .” Fla. Stat. § 559.72(18). Defendant argues that Plaintiff has failed to state an FCCPA claim because: (1) enforcing a security instrument does not amount to debt collection within the meaning of the FCCPA; (2) Plaintiff has not alleged that Defendant was attempting to collect a debt; and (3) Plaintiff has not alleged that Defendant “communicated” with him within the meaning of the FCCPA. (Doc. 12, pp. 4-6.) The Court disagrees.

It is true that “a mortgage foreclosure action itself” does not qualify as debt collection under the FCCPA. Trent v. Mortg. Elec. Registration Sys., Inc., 618 F. Supp. 2d 1356, 1360-61 (M.D. Fla. 2007) (Corrigan, J.) (noting that Fair Debt Collection Practices Act (“FDCPA”) case law applies to FCCPA cases); see also Warren v. Countrywide Home Loans, Inc., 342 F. App’x 458, 460 (11th Cir. 2009) (“[F]oreclosing on a security interest is not debt collection activity [for the purposes of § 1692g of the FDCPA].”). However, the action at issue here is not the invocation  [*5] of “legal process to foreclose,” see Trent, 618 F. Supp. 2d at 1361, but rather debt collection calls made outside that judicial process. It is not as if these calls were made to notify Plaintiff of the foreclosure action or to attempt to comply with the statute. Cf. Diaz v. Fla. Default Law Grp., P.L., No. 3:09-cv-524-J-32MCR, 2011 U.S. Dist. LEXIS 68541, 2011 WL 2456049, at *4 (M.D. Fla. Jan. 3, 2011) (Corrigan, J.) (“The timing of the filing of the foreclosure complaints [just weeks before the communications] confirms that defendant was not using the [alleged debt collection] letters in an attempt to collect the debt outside the foreclosure process.”). Rather, the calls were made years into the underlying foreclosure action, and after Plaintiff previously filed an FCCPA claim for this very same behavior, in an explicit attempt to collect a debt. (Doc. 2, ¶ 16 (“This is . . . your mortgage servicer, calling in regards to your mortgage. . . . This is an attempt to collect a debt . . . .”).) To try to claim now that these calls were made in an attempt to foreclose the security interest rather than to collect a debt is simply disingenuous. See Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1217 (11th Cir. 2012)  [*6] (holding that a letter explicitly stating that the defendant was attempting to collect a debt plainly constituted debt-collection activity, and noting that “[t]he fact that the letter and documents relate to the enforcement of a security interest does not prevent them from also relating to the collection of a debt”). To give credence to that argument would be to give carte blanche to any holder of secured debts to harass consumers in the process of foreclosure, and as the U.S. Court of Appeals for the Eleventh Circuit aptly noted, “That can’t be right. It isn’t.” Id. at 1218.

Plaintiff has alleged that Defendant bypassed his lawyer and called him directly to discuss payment on his mortgage and to attempt to collect a debt. (Doc. 2, ¶¶ 16-18.) This is precisely the kind of behavior that the FCCPA was designed to prevent. The Court therefore finds that Plaintiff has sufficiently stated an FCCPA claim, and Defendant’s motion is due to be denied on that ground.

II. TCPA

The TCPA prohibits making any call using an autodialer to any cell phone, except for emergency calls or calls where the called party has given prior consent. 47 U.S.C. § 227(b)(1)(A)(iii). Defendant argues that all debt-collection  [*7] calls, including those made to cell phones, are categorically exempt from the TCPA. (Doc. 12, p. 7.) However, the case on which Defendant relies for that proposition, Meadows v. Franklin Collection Serv., Inc., 414 F. App’x 230 (11th Cir. 2011), is distinguishable from the one at bar.

In Meadows, the plaintiff was suing under two provisions of the TCPA which are inapplicable here: § 227(b)(1)(B), regarding landlines, 2 and § 227(c)(5), regarding telephone solicitations. 3 Id. at 235-36. Neither of those provisions apply in this case, as Plaintiff is suing under § 227(b)(1)(A)(iii), regarding cell phones. (See Doc. 2, ¶ 21.) Though Meadows does broadly state that “the FCC has determined that all debt-collection circumstances are excluded from the TCPA’s coverage,” that statement is dicta and is also qualified by the narrow holding of the case, which was specifically based on the landline and telephone-solicitation provisions. 414 F. App’x at 235.

FOOTNOTES

2 The court held that the defendant did not violate the landline provision because it had an existing business relationship with the intended recipient of the call and the call was made for a commercial, non-solicitation purpose—both explicit  [*8] exemptions from that provision of the TCPA. Meadows, 414 F. App’x at 235 (citing In re Rules & Regulations Implementing Tel. Consumer Prot. Act of 1991, 7 FCC Rcd. 8752, 8773 (Oct. 16, 1992) (“[P]rerecorded debt collection calls would be exempt from the prohibitions on such calls to residences as: (1) calls from a party with whom the consumer has an established business relationship, and (2) commercial calls which do not adversely affect privacy rights and which do not transmit an unsolicited advertisement.” (emphasis added)).

3 The court held that the defendant did not violate the telephone-solicitation provision because the calls made were debt collections, not telephone solicitations. Meadows, 414 F. App’x at 236. The court rightly noted that the FCC has determined that debt-collection calls are “not subject to the TCPA’s separate restrictions on telephone solicitations.Id. (citation and internal quotation marks omitted) (emphasis added).

Further, this Court must read that statement in Meadows in conjunction with the FCC ruling on which it relies, which provides that “prior express consent [in debt-collection calls made to cell phones] is deemed to be granted only if the wireless  [*9] number was provided by the consumer to the creditor, and that such number was provided during the transaction that resulted in the debt owed.” In re Rules & Regulations Implementing Tel. Consumer Prot. Act of 1991, Request of ACA Int’l for Clarification & Declaratory Ruling, 23 FCC Rcd. 559, 564-65 (Dec. 28, 2007) (FCC Ruling). This ruling clarifies that not all debt-collection calls to cell phones are categorically exempted from the TCPA—unlike the broad exemptions for landline debt-collection calls and telephone solicitations, which are based on the content of the call itself. See id. at 561-62 (“[P]rerecorded debt collection calls are exempted from Section 227(b)(1)(B) of the TCPA which prohibits prerecorded or artificial voice messages to residences.”), 565 (“[C]alls solely for the purpose of debt collection are not telephone solicitations . . . . Therefore, calls regarding debt collection . . . are not subject to the TCPA’s separate restrictions on ‘telephone solicitations.'”). Rather, with regard to cell phones, a debt collector must show that the debtor provided the number during the debt transaction; only then will a debt-collection call fall under the consent exception in  [*10] the cell-phone provision. See Gager v. Dell Fin. Servs., LLC, 727 F.3d 265, 273 (3d Cir. 2013) (“The only exemptions in the TCPA that apply to cellular phones are for emergency calls and calls made with prior express consent. Unlike the exemptions that apply exclusively to residential lines, there is no . . . debt collection exemption that applies to autodialed calls made to cellular phones. Thus, the content-based exemptions invoked by [the defendant] are inapposite.”).

In sum, debt-collection calls to cell phones are only exempt from the TCPA if the debtor had prior express consent, in the form of a number provided by the debtor during the transaction giving rise to that debt. See FCC Ruling, 23 FCC Rcd. at 564-65. As Plaintiff has pled that he did not give consent or alternatively revoked consent (Doc. 2, ¶¶ 22-23), he has adequately stated a TCPA claim, and Defendant’s motion is due to be denied on that ground. It will be Defendant’s task to prove consent at the summary-judgment stage. See FCC Ruling, 23 FCC Rcd. at 565 (putting the burden on the caller to show consent); see, e.g., Osorio v. State Farm Bank, F.S.B., 859 F. Supp. 2d 1326, 1330-31 (S.D. Fla. 2012) (reviewing the issue  [*11] of consent and revocation on summary judgment).

CONCLUSION

Accordingly, it is hereby ORDERED AND ADJUDGED that Defendant Wells Fargo’s  Click for Enhanced Coverage Linking SearchesMotion to Dismiss Plaintiff Andrew Conklin’s Complaint and Supporting Legal Memorandum (Doc. 12) is DENIED.

DONE AND ORDERED in Chambers in Orlando, Florida, on December 8, 2013.

/s/ Roy B. Dalton Jr.

ROY B. DALTON JR.

United States District Judge

 

W VA Court Says Directions to Stop Making Payments and Refusing to Apply Payments is Breach of Contract

BANK OF AMERICA TAKES ANOTHER HIT:
BANKS MISLEAD BORROWERS WHEN THEY INSTRUCT THEM TO STOP MAKING PAYMENTS AND REFUSE PAYMENTS
If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.
The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Note: We’ve all heard it a million times. “The bank told me to stop making payments in order to get modification or other relief.” It was a blatant lie and it was intended to get the borrower in so deep they couldn’t get out, leading inevitably to foreclosure.

Why would the “bank” want foreclosure? Because they took far more money from investors than they used to fund loans. If the deal fails and dissolves into foreclosure the investors are less likely to probe deeply into the transaction to find out what really happened. The fact is that the banks were all skimming off the top taking as much as 50% f the money from investors and sticking it in their own pockets, using it to gamble and keeping the proceeds of gambling.

If the banks really went the usual route of workouts, deed in lieu, modifications and other relief to borrowers, there would be an accounting night mare for them as eventually the auditing the firms would pick up on the fact that the investment banks were taking far more money than was actually intended to be used for investing in mortgages.

They covered it up by creating the illusion of a mortgage closing in which the named payee on the note and security instrument were neither lenders nor creditors and eventually they assigned the loan to a REMIC trust that had neither received the loan nor paid for it.

In this case the Court takes the bank to task for both lying to the borrower about how much better off they would be if they stopped making payments, thus creating a default or exacerbating it, and the refusal of the bank to accept payments from the borrower. It is a simple breach of contract action and the Court finds that there is merit to the claim, allowing the borrower to prove their case in court.

Another way of looking at this is that if everyone had paid off their mortgages in full, there would still be around $3 trillion owed to the investors representing the tier 2 yield spread premium that the banks skimmed off the top plus the unconscionable fees and costs charged to the accounts.  Where did that money go? See the previous post

This well-reasoned well written opinion discusses the case in depth and represents a treasure trove of potential causes of action and credibility to borrowers’ defenses to foreclosure claims.

 

2013 U.S. Dist. LEXIS 35320, * MOTION TO DISMISS DENIED

JASON RANSON, Plaintiff, v. BANK OF AMERICA, N.A., Defendant.
CIVIL ACTION NO. 3:12-5616
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA, HUNTINGTON DIVISION
2013 U.S. Dist. LEXIS 35320

March 14, 2013, Decided
March 14, 2013, Filed 

CORE TERMS:modification, foreclosure, borrower, citations omitted, mitigation, misrepresentation, servicer, consumer, lender, cause of action, contractual, guaranteed, mortgage, estoppel, contract claim, default, special relationship, reinstatement, collection, quotation, breached, notice, factual allegations, breach of contract, force and effect, indebtedness, thereunder, foreclose, veteran’s, manual

COUNSEL: [*1] For Jason Ranson, Plaintiff: Daniel F. Hedges 1, Jennifer S. Wagner, LEAD ATTORNEYS, MOUNTAIN STATE JUSTICE, INC., Charleston, WV.

For Bank of America, N.A., Defendant: Carrie Goodwin Fenwick, Victoria L. Wilson, LEAD ATTORNEYS, GOODWIN & GOODWIN, Charleston, WV.

JUDGES: ROBERT C. CHAMBERS, CHIEF UNITED STATES DISTRICT JUDGE.

OPINION BY: ROBERT C. CHAMBERS

OPINION

MEMORANDUM OPINION AND ORDER

Pending before the Court is a Motion to Dismiss by Defendant Bank of America, N.A. (BANA). ECF No. 4. Plaintiff Jason Ranson opposes the motion. For the following reasons, the Court DENIES, in part, and GRANTS, in part, Defendant’s motion.

I.

FACTUAL AND PROCEDURAL HISTORY

On September 19, 2012, Defendant removed this action from the Circuit Court of Putnam County based upon diversity of jurisdiction. See 28 U.S.C. §§ 1332 and 1441. In his Complaint, Plaintiff asserts that he took out a mortgagewith Countrywide Home Loans, Inc. to purchase a house in 2007. The loan was originated pursuant to the Department of Veterans Affairs (VA) Home Loan Guaranty Program. Plaintiff alleges the loan “contained a contractual guarantee by the . . . (VA), which requires—as incorporated into the contract—that Defendant comply with regulations and [*2] laws governing VA guaranteed loans, including those regulations governing Defendant’s actions in the event of the borrower’s default” as he was, and continues to be, on active duty with the United States Army. Compl. at ¶5, in part. Defendant is the current servicer and holder of the loan.

In 2009, Plaintiff became two months behind on the loan. Plaintiff asserts that Defendant informed him he was eligible for a loan modification and requested he submit certain documentation to have the modification finalized. Plaintiff claims that Defendant also told him to stop making any payments as they would interfere with the finalization process. Plaintiff states he had the means to make the two delinquent payments at that time or he could have sought refinancing or taken other actions to save his house and credit. However, he relied upon Defendant’s statements and stopped making payments, pending its assurance that he was eligible for a modification. In fact, Plaintiff states that Defendant returned his last payment without applying it to his account.

Over the next several months, Plaintiff asserts he repeatedly submitted the documentation requested by Defendant for the modification process. [*3] Plaintiff also contacted Defendant on a weekly basis for updates. Plaintiff claims he was assured by Defendant it would not foreclose, and Defendant discouraged him from calling by stating it would delay finalization of the modification. Approximately eight months after the process began, Plaintiff contends that Defendant informed him the loan would not be modified because VA loans do not qualify for assistance. According to Plaintiff, Defendant nevertheless requested that he submit documentation for another modification. Plaintiff states he complied with the request but, approximately six months later, Defendant again told him the modification was denied because he had a VA loan. Defendant further told him he should vacate the property because it was going to foreclose. Plaintiff asserts he asked Defendant if he could short sell the house, but Defendant said no and stated the only way he could save his house would be by full reinstatement. As fourteen months had passed since he was told to stop making payments, Plaintiff states that he could not afford to pay the full amount owed.

As a result of these alleged activities, Plaintiff filed this action, alleging five counts of action. [*4] Count I is for breach of contract, Count II is for negligence, Count III is for fraud, Count IV is for estoppel, and Count V is for illegal debt collection. Defendant now moves to dismiss each of the counts.

II.

STANDARD OF REVIEW

In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the United States Supreme Court disavowed the “no set of facts” language found in Conley v. Gibson, 355 U.S. 41 (1957), which was long used to evaluate complaints subject to 12(b)(6) motions. 550 U.S. at 563. In its place, courts must now look for “plausibility” in the complaint. This standard requires a plaintiff to set forth the “grounds” for an “entitle[ment] to relief” that is more than mere “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 555(internal quotation marks and citations omitted). Accepting the factual allegations in the complaint as true (even when doubtful), the allegations “must be enough to raise a right to relief above the speculative level . . . .” Id. (citations omitted). If the allegations in the complaint, assuming their truth, do “not raise a claim of entitlement to relief, this basic deficiency should . . .be exposed [*5] at the point of minimum expenditure of time and money by the parties and the court.” Id. at 558 (internal quotation marks and citations omitted).

In Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court explained the requirements of Rule 8 and the “plausibility standard” in more detail. In Iqbal, the Supreme Court reiterated that Rule 8 does not demand “detailed factual allegations[.]” 556 U.S. at 678(internal quotation marks and citations omitted). However, a mere “unadorned, the-defendant-unlawfully-

harmed-me accusation” is insufficient. Id. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Id. (quoting Twombly, 550 U.S. at 570). Facial plausibility exists when a claim contains “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citation omitted). The Supreme Court continued by explaining that, although factual allegations in a complaint must be accepted as true for purposes of a motion to dismiss, this tenet does not apply to legal conclusions. Id. “Threadbare recitals of the elements [*6] of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citation omitted). Whether a plausible claim is stated in a complaint requires a court to conduct a context-specific analysis, drawing upon the court’s own judicial experience and common sense. Id. at 679. If the court finds from its analysis that “the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]‘-‘that the pleader is entitled to relief.'” Id. (quoting, in part, Fed. R. Civ. P. 8(a)(2)). The Supreme Court further articulated that “a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Id.

III.

DISCUSSION

A.

Breach of Contract

In Count I, Plaintiff alleges that the Deed of Trust and the VA Guaranteed Loan and Assumption Policy Rider provide that “Defendant’s rights upon the borrower’s default are limited by Title 38 of the United States Code and any regulations issued thereunder.” [*7] Compl., at ¶22. According to Plaintiff, the contract also provides that Defendant must apply all payments to his account. Plaintiff asserts Defendant breached the contract by (1) discouraging him from making payments, (2) returning his payments, (3) allowing the accumulation of arrears until it was impossible for him to reinstate the loan, (4) initiating foreclosure and failing to grant a modification after assuring him it would be granted, and (5) “failing to comply with VA regulations and guidance requiring, inter alia, that the Defendants [sic] consider Plaintiff for a variety [of] loss mitigation options, and provide notice of such rejection(s) in writing, prior to foreclosure.” Id. at ¶24(d).

To avoid dismissal of a breach of contract claim under Rule 12(b)(6), West Virginia law requires: “the existence of a valid, enforceable contract; that the plaintiff has performed under the contract; that the defendant has breached or violated its duties or obligations under the contract; and that the plaintiff has been injured as a result.” Executive Risk Indem., Inc. v. Charleston Area Med. Ctr., Inc., 681 F. Supp.2d 694, 714 (S.D. W. Va. 2009) (citations omitted). For a claim of breach [*8] of contract to be sufficient, “a plaintiff must allege in his complaint ‘the breach on which the plaintiffs found their action . . . [and] the facts and circumstances which entitle them to damages.'” Id. In this case, Defendant argues Plaintiff has failed to sufficiently allege a breach of contract because he has not specified what specific VA regulations purportedly were violated and, in any event, the regulations only require the foreclosure be conducted in accordance to West Virginia law. As Defendant maintains it complied with the West Virginia law, Defendant asserts it has not breached the contract.

Plaintiff does not dispute that neither the contracts nor West Virginia law require a loan modification. However, Plaintiff argues that the VA has promulgated regulations to limit foreclosures of loans it has guaranteed and Defendant did not comply with those requirements. Plaintiff quotes from the VA Guaranteed Loan and Assumption Policy Rider, which provides, in part:

If the indebtedness secured hereby be guaranteed or insured under Title 38, United States Code, such Title and Regulations issued thereunder and in effect on the date hereof shall govern the rights, duties and liabilities [*9] of Borrower and Lender. Any provisions of the Security Instrument or other instruments executed in connection with said indebtedness which are inconsistent with said Title or Regulations, including, but not limited to, the provision for payment of any sum in connection with prepayment of the secured indebtedness and the provision that the Lender may accelerate payment of the secured indebtedness pursuant to Covenant 18 of the Security Instrument, are hereby amended or negated to the extent necessary to confirm such instruments to said Title or Regulations.

VA Guar. Loan and Assumption Policy Rider, at 2, ECF No. 4-1, at 15. Specifically, Plaintiff cites 38 U.S.C. § 36.4350(f), (g), and (h), which requires, inter alia, Defendant to send Plaintiff a letter outlining his loss mitigation options after he fell behind on his payments and, under certain circumstances, have a face-to-face meeting with Plaintiff. Likewise, 38 C.F.R. § 36.4319 provides incentives to servicers to engage in loss mitigation options in lieu of foreclosure, and 38 C.F.R. § 36.4315expressly allows a loan modification under certain circumstances if it is in veteran’s and the Government’s best interest. Plaintiff also [*10] cites a Servicer Guide for VA guaranteed loans, which contains similar loss mitigation considerations. 1 Plaintiff states that all these requirements are incorporated into the contract, and Defendant violated the contract by stating he could not receive a loan modification because he had a VA loan; by telling him to stop making payments rather than placing him on a repayment plan; by not timely evaluating the loan and considering him for loss mitigation and, instead, placing him in foreclosure; and by refusing to allow Plaintiff to apply for a compromise sale because Defendant had started foreclosure. Moreover, Plaintiff asserts Defendant violated his right to reinstate and failed to exercise its discretion in good faith by refusing his payment; telling him to stop making payments; informing he was qualified for loan modification, and then denying the modification; providing him conflicting, inconsistent, and inaccurate information about his account; refusing to consider a short sale; and never providing him a written explanation of why loss mitigation was denied.

FOOTNOTES

1 U.S. Dept. of Veterans Affairs, VA Servicer Guide 6 (July 2009), available at http:www.benefits.va.gov/homeloans/docs/va_servicer_guide.pdf.

Defendant [*11] responds by asserting that the VA regulations and the handbook are permissive in nature, not mandatory, and the VA Servicer Guide is not binding. See VA Servicer Guide, at 4 (“This manual does not change or supersede any regulation or law affecting the VA Home Loan Program. If there appears to be a discrepancy, please refer to the related regulation or law.”); see also 38 C.F.R. § 36.4315(c)(stating “[t]his section does not create a right of a borrower to have a loan modified, but simply authorizes the loan holder to modify a loan in certain situations without the prior approval of the Secretary” 38 U.S.C. § 36.4315(c)). Thus, Defendant argues they establish no affirmative duty for it to act. In support of its position, Defendant cites several older cases which held certain regulations issued by the VA and other governmental agencies do not have the force and effect of law. 2

FOOTNOTES

2 See First Family Mortg. Corp. of Fl. v. Earnest, 851 F.2d 843, 844-45 (6th Cir. 1988)(finding that mortgagors could not state a cause of action based on VA publications against the VA for allegedly failing to monitor lender servicing of VA-backed loans); Bright v. Nimmo, 756 F.2d 1513, 1516 (11th Cir. 1985) [*12] (rejecting the plaintiff’s argument that he has an implied cause of action against the VA or lender based upon the VA’s manual and guidelines); United States v. Harvey, 659 F.2d 62, 65 (5th Cir. 1981)(finding that the VA manual did not have the force and effect of law by itself and it was not incorporated into the promissory notes or deeds to support a contract claim); Gatter v. Cleland, 512 F. Supp. 207, 212 (E.D. Pa. 1981)(holding “that the decision to implement a formal refunding program is one that squarely falls within the committed to agency discretion exception [of the VA] and is not subject to judicial review” (footnote omitted)); and Pueblo Neighborhood Health Ctrs., Inc. v. U.S. Dep’t of Health and Human Serv., 720 F.2d 622, 625 (10th Cir. 1983)(finding a pamphlet issued by the Department of Health and Human Services, referred to as a Grant Application Manual, was not the product of formal rule-making and did not have the force and effect of law).

However, upon review of those cases, the Court finds that they generally involve situations in which the plaintiffs were attempting to assert a cause of action based upon the regulation itself, rather than as a breach of contract [*13] claim. An action based on a contract involves a much different legal theory than one based solely on enforcement of a regulation apart from a contractual duty. Indeed, Plaintiff cites a number of comparable mortgagecases in which courts permitted homeowners to pursue claims against lenders based upon regulations issued by the Federal Housing Authority (FHA) where it was alleged that the parties contractually agreed to comply with those regulations. As explained by the Court in Mullins v. GMAC Mortg., LLC, No. 1:09-cv-00704, 2011 WL 1298777, **2-3 (S.D. W. Va. Mar. 31, 2011), plaintiffs, who allege a straightforward breach of contact claim, “are not, as defendants would have the court believe, suing to enforce HUD regulations under some vague and likely non-existent cause of action allowing a member of the public to take upon himself the role of regulatory enforcer. These two theories of recovery are distinct and unrelated,” and the Court held the plaintiffs could proceed on their express breach of contract claim. 2011 WL 1298777, *3. 3Upon review, this Court is persuaded that the same reasoning controls here. Therefore, the Court will not dismiss Plaintiff’s contract claim based [*14] upon Defendant’s argument that the regulations and handbook do not have full force and effect of law because Plaintiff has alleged the contract incorporates the limitations set by the regulations. See Compl., at ¶22 (“The contract provides that Defendant’s rights upon the borrower’s default are limited by Title 38 of the United States Code and any regulations issued thereunder.”).

FOOTNOTES

3 See also Kersey v. PHH Mortg. Corp., 682 F. Supp.2d 588, 596-97 (E.D. Va. 2010), vacated on other grounds, 2010 WL 3222262 (E.D. Va. Aug. 13, 2010) (finding, in part, that the plaintiff sufficiently alleged a claim that the defendant breached an FHA regulation which was incorporated in a Deed of Trust); Sinclair v. Donovan, Nos. 1:11-CV-00010, 1:11-CV-00079, 2011 WL 5326093, *8 (S.D. Ohio Nov. 4, 2011) (“find[ing] that the HUD-FHA regulations concerning loss mitigation are enforceable terms of the mortgagecontract between the parties and that Plaintiffs cannot be denied the benefit of these provisions by virtue of the fact of simple default”); and Baker v. Countrywide Home Loans, Inc., 3:08-CV-0916-B, 2009 WL 1810336, **5-6 (N.D. Tex. June 24, 2009) (stating that a “failure to comply with the [HUD] regulations [*15] made part of the parties’ agreement may give rise to liability on a contact theory because the parties incorporated the terms into their contact”).

Defendant further argues, however, that some of the regulations cited by Plaintiff are irrelevant to this case because, for instance, a face-to-face meeting with a borrower is required only under certain circumstances which do not exist in this case. See 38 C.F.R. § 36.4350(g)(iii). In addition, Defendant asserts that, in any event, it did not breach the contract because it had no duty to engage in loss mitigation and it otherwise complied with the contract’s terms. The Court finds, however, that whether or not Defendant violated any of the terms of the contract is a matter best resolved after discovery. Therefore, at this point, the Court finds that Plaintiff has sufficiently alleged a breach of contract claim and, accordingly, DENIES Defendant’s motion to dismiss the claim. 4

FOOTNOTES

4Plaintiff obviously disagrees with Defendant’s argument and filed a “Notice of Additional Authority” disputing Defendant’s position that the VA regulations require holders to evaluate borrowers for loss mitigation. Plaintiff cites the Veterans Benefits Administration, [*16] Revised VA Making Home Affordable Program, Circular 26-10-6 (May 24, 2010), which states, in part: “Before considering HAMP-style modifications, servicers must first evaluate defaulted mortgages for traditional loss mitigation actions cited in Title 38, Code of Federal Regulations, section 36.4819 (38 CFR § 36.4819); i.e., repayment plans, special forbearances, and traditional loan modifications. . . . If none of the traditional home retention loss mitigation options provide an affordable payment, the servicer must evaluate the loan for a HAMP-style modification prior to deciding that the default is insoluble and exploring alternatives to foreclosure.” (Available at http://www.benefits.va.gov/HOMELOANS/circulars/26_10_6.pdf).

B.

Negligence and Fraud

Defendant next argues that Plaintiff’s claim for negligence and fraud in Counts II and III, respectively, are duplicative of his illegal debt collection claim in Count V under the West Virginia Consumer Credit Protection Act (WVCCPA) and cannot survive because Plaintiff fails to allege Defendant owed him a special duty beyond the normal borrower-servicer relationship. Therefore, Defendant asserts Counts II and III should be dismissed.

In Bailey [*17] v. Branch Banking & Trust Co., Civ. Act. No. 3:10-0969, 2011 WL 2517253 (S.D. W. Va. June 23, 2011), this Court held that the West Virginia Supreme Court in Casillas v. Tuscarora Land Co., 412 S.E.2d 792 (W. Va. 1991), made it clear a plaintiff can pursue claims under the WVCCPA and common law at the same time. 2011 WL 2517253, *3. The Court reasoned that “[i]t would be contrary to both the legislative intent of the WVCCPA and the whole crux of Casillas if the Court were to preclude consumers from bringing actions for violations of the WVCCPA and common law merely because the claims are based upon similar facts.” Id. The Court found that “[n]either the WVCCPA nor Casillasmakes a consumer choose between the two options. A consumer clearly can choose to pursue both avenues provided “separate” claims are set forth in a complaint.” Id.

However, under West Virginia law, a plaintiff “cannot maintain an action in tort for an alleged breach of a contractual duty.” Lockhart v. Airco Heating & Cooling, 567 S.E.2d 619, 624 (W. Va. 2002)(footnote omitted). Rather, “[t]ort liability of the parties to a contract arises from the breach of some positive legal duty imposed by law because of the relationship [*18] of the parties, rather than a mere omission to perform a contract obligation.” Id. (emphasis added). Whether a “special relationship” exists between the parties beyond their contractual obligations is “determined largely by the extent to which the particular plaintiff is affected differently from society in general.” Aikens v. Debow, 541 S.E.2d 576, 589 (W. Va. 2000). “In the lender-borrower context, courts consider whether the lender has created such a ‘special relationship’ by performing services not normally provided by lender to a borrower.” Warden v. PHH Mortgage Corp., No. 3:10-cv-00075, 2010 WL 3720128, at *9 (N.D. W. Va. Sept. 16. 2010 (citing Glascock v. City Nat’l Bank of W. Va., 576 S.E.2d 540, 545-56 (W. Va. 2002) (other citation omitted)).

Here, Plaintiff’s negligence claim is quite simple. He alleges that, where “Defendant engaged in significant communications and activities with Plaintiff[] and the loan, Defendant owed a duty to Plaintiff to provide him with accurate information about his loan account and its obligations and rights thereunder.” Compl., at ¶27. Next, Plaintiff asserts “Defendant[] breached that duty by instructing Plaintiff not to make payments, advising [*19] Plaintiff that he would receive a loan modification, and then instead allowing arrears to accrue for months and ultimately denying Plaintiff[] assistance and pursuing foreclosure.” Id. at ¶28. Upon review of these allegations, the Court finds Plaintiff has failed to allege any positive legal duty beyond Defendant’s purported contractual obligations. There is nothing about these allegations that creates a “special relationship” between the parties. Indeed, a duty to provide accurate loan information is a normal service in a lender-borrower relationship.

In support of their claim Plaintiff relies, inter alia, on Glasock v. City National Bank of West Virginia, 576 S.E.540 (W. Va. 2002), where the West Virginia Supreme Court found that a special relationship existed between a lender and the borrowers. In Glascock, the bank maintained oversight and was significantly involved in the construction of the borrowers’ house. The bank possessed information that there were substantial problems with the house, but it failed to reveal those problems to the borrowers. 576 S.E.2d at 545. The West Virginia Supreme Court found that the bank’s significant involvement in the construction created a special [*20] relationship between the parties which carried “with it a duty to disclose any information that would be critical to the integrity of the construction project.” Id. at 546 (footnote omitted).

To the contrary, Plaintiff’s negligence claim in this case rests merely on the fact Defendant had a duty to provide him accurate information about the loan and failed to do so. Plaintiff has failed to sufficiently allege any facts which support a special relationship between the parties as existed in Glascock. Therefore, the Court GRANTS Defendant’s motion to dismiss Plaintiff’s negligence claim in Count II.

Turning next to Plaintiff’s fraud claim, Defendant argues the claim must be dismissed because it fails to meet the heightened pleading standard found in Rule 9(b) of the Federal Rules of Civil Procedure. Rule 9(b)provides that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). Under this heightened pleading standard, a plaintiff is required to “at a minimum, describe the time, place, and contents of the false [*21] representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.” U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999))(internal quotation marks omitted). In other words, the plaintiffs must describe the “‘who, what, when, where, and how’ of the alleged fraud.” Id. (quoting U.S. ex rel. Willard v. Humana Health Plan of Texas Inc., 336 F.3d 375, 384 (5th Cir. 2003) (other citation omitted)).

In his Complaint, Plaintiff alleges that he had trouble making his mortgage payments around 2009. Compl, at ¶6. When he was approximately two months behind on his payments, Defendant informed him that he qualified for a loan modification, but he needed to complete the necessary paperwork to have it finalized. Id. at ¶7(a). “At this time,” Defendant also informed Plaintiff not to make any more payments until the modification was finalized. Id. at ¶7(b). About eight months later, Defendant told Plaintiff that he did not qualify for a modification, but Defendant instructed him to submit documentation for another modification. Id. at [*22] ¶13. After approximately six more months passed, Plaintiff was notified again that he was being denied assistance. Id. at ¶14. Plaintiff further alleges that, before May of 2012, Defendant never gave him “a written decision on his loan modification applications or any explanation for why he had denied him for assistance, other than its statements by telephone that he did not qualify for assistance because he had a VA loan.” Id. at ¶18.

In addition to these alleged facts, Plaintiff specifically states in his cause of action for fraud that “[i]n or around 2009,” Defendant told him to stop making payments and it would modify his loan rather than pursue foreclosure. Id. at ¶31. Plaintiff asserts these “representations were false and material,” and they were made knowingly, recklessly, and/or intentionally. Id. at ¶¶32-33. Plaintiff further claims he detrimentally relied upon these misrepresentations by stopping his payments and not attempting reinstatement, after which Defendant sought foreclosure. Id. at ¶¶34-35.

In considering these allegations, the Court is mindful of the fact it should be hesitant “to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant [*23] has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts.” Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999). Here, the Court finds that Plaintiff adequately alerts Defendant as to “the time, place, and contents of the false representation[.]” U.S. ex rel. Wilson, 525 F.3d at 379(internal quotation marks and citation omitted). Plaintiff clearly alleges the fraudulent activity consisted of Defendant instructing him to stop making payments and assuring him he would receive a loan modification instead of foreclosure. He also asserts the representations were made over the telephone and occurred in 2009, when his payments were two months in arrears, and before Defendant returned his payment. In addition, Plaintiff states that he continued to call Defendant approximately once a week and was assured that it would not proceed with foreclosure. Compl., at ¶12(a), (b), and (c). Given this information, Defendant should be able to prepare its defense based upon the allegations made. In addition, the allegations provide enough information that [*24] Defendant also should be able to identify and review its customer service notes, call logs, account records, and any phone recordings it may have during the specified time period. Thus, the Court DENIES Defendant’s motion to dismiss Plaintiff’s claim for fraud.

C.

Estoppel

Defendant further argues that Plaintiff’s claim in Count IV for estoppel must be dismissed. To maintain a claim for estoppel in West Virginia, a plaintiff must show:

[(1)] a false representation or a concealment of material facts; [(2)] it must have been made with knowledge, actual or constructive of the facts; [(3)] the party to whom it was made must have been without knowledge or the means of knowledge of the real facts; [(4)] it must have been made with the intention that it should be acted on; and [(5)] the party to whom it was made must have relied on or acted on it to his prejudice.

Syl. Pt. 3, Folio v. City of Clarksburg, 655 S.E.2d 143 (W. Va. 2007) (quoting Syl. Pt. 6, Stuart v. Lake Washington Realty Corp., 92 S.E.2d 891 (W. Va. 1956)). Defendant asserts Plaintiff had actual knowledge via correspondence it sent to Plaintiff that he was not guaranteed loan assistance and loan assistance would not impact Defendant’s [*25] right to foreclose. Defendant attached the correspondence to its Motion to Dismiss as Exhibit D. In addition, Defendant argues that Plaintiff admits to missing two payments before the alleged misrepresentations occurred so he cannot state he relied upon those alleged misrepresentations in failing to make his payments.

“[W]hen a defendant attaches a document to its motion to dismiss, ‘a court may consider it in determining whether to dismiss the complaint [if] it was integral to and explicitly relied on in the complaint and [if] the plaintiffs do not challenge its authenticity.’ ” Am. Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004) (quoting Phillips v. LCI Int’l, Inc., 190 F.3d 609, 618 (4th Cir. 1999)). In this case, Plaintiff asserts that, “at this point there is no evidence that the letter was actually sent to or received by Plaintiff, nor has Plaintiff had the opportunity to present mailings, call logs, or testimony supporting his claim.” Pl.’s Res. in Opp. to Def.’s Mot. to Dis., ECF No. 7, at 16. 5Therefore, the Court will not consider the letter. Likewise, the Court finds no merit to the argument that Plaintiff’s admission that he was two months [*26] behind on his loan extinguishes his estoppel claim. It is clear from the Complaint that Plaintiff’s claim is that he relied upon the alleged misrepresentations after he was two months delinquent. Accordingly, the Court DENIES Defendant’s motion to dismiss the estoppel claim.

FOOTNOTES

5In addition, the Court notes that the letter appears undated and Defendant sometimes refers to it as a 2009 letter and sometimes as a 2010 letter. At the top right-hand side of the letter, there is a statement providing: “Please complete, sign and return all the enclosed documents by December 5, 2009.” Exhibit D, ECF No. 4-4, at 1.

D.

WVCCPA

Finally, Defendant asserts Plaintiff’s claim under the WVCCPA in Count V must be dismissed because it fails to meet the requirements of Rules 8(a)(2) of the Federal Rules of Civil Procedure. Rule 8(a)(2)provides that “[a] pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief[.]” Fed. R. Civ. P. 8(a)(2). Defendant argues that Plaintiff fails to meet this requirement because he merely pled a legal conclusion that Defendant engaged in illegal debt collection and he does not plead sufficient [*27] factual content to support that conclusion. In addition, Defendant states it had a contractual right to return Plaintiff’s partial payment so returning the payment cannot support a WVCCPA claim.

Plaintiff, however, argues that his claims under the WVCCPA are based on three grounds. First, Plaintiff asserts Defendant used fraudulent, deceptive, or misleading representations to collect the debt or get information about him, in violation of West Virginia Code § 46A-2-127. 6 Second, he claims that Defendant used unfair or unconscionable means to collect the debt, in violation of West Virginia Code § 46A-2-128. 7 Third, Plaintiff contends that Defendant’s refusal to apply payments to his account violated West Virginia Code § 46A-2-115. Plaintiff then argues that the first two claims are sufficiently supported in opposition to a motion to dismiss based upon his allegations that (1) Defendant told him he qualified for loan modification and would receive one if he completed the requested financial information; (2) Defendant told him to stop making payments because it would interfere with the modification process, but in reality it increased the likelihood of foreclosure; (3) Defendant assured [*28] Plaintiff it would not foreclose on his home during the time the loan modification application was being processed; (4) Defendant ultimately represented it could not modify the loan because it was a VA loan; and (5) Defendant would not consider a short sale of the house and, instead, proceeded with foreclosure. Plaintiff argues that each of these misrepresentations made by Defendant were intended to collect financial information about him through the modification process or collect the debt via foreclosure. He also states the delay and improper refusal of payments greatly increased the amount he was in arrears, which allowed Defendant to attempt to collect the debt through foreclosure.

FOOTNOTES

6Section 127 provides, in part: “No debt collector shall use any fraudulent, deceptive or misleading representation or means to collect or attempt to collect claims or to obtain information concerning consumers.” W. Va. Code § 46A-2-127, in part.

7Section 128 states, in part: “No debt collector shall use unfair or unconscionable means to collect or attempt to collect any claim.” W. Va. Code §46A-2-128, in part.

Upon consideration of these allegations, the Court finds they are sufficient to state a claim [*29] under the WVCCPA. As stated by the Honorable Thomas E. Johnston stated in Koontz v. Wells Fargo, N.A., Civ. Act. No. 2:10-cv-00864, 2011 WL 1297519 (S.D. W. Va. Mar. 31, 2011), West Virginia “§ 46A-2-127applies to both ‘misrepresentations made in collecting a debt’ and ‘misrepresentations . . . [made] when obtaining information on a customer.'” 2011 WL 1297519, at *6. Therefore, allegations that a financial institution misrepresented to the borrower that it would reconsider a loan modification and, thereby, obtained additional financial information from the borrower, are sufficient to state a claim. Id. Likewise, the Court finds the allegations are sufficient to state a claim that Defendant used “unfair or unconscionable means to collect or attempt to collect any claim” pursuant to West Virginia Code §46A-2-128, in part. Cf. Wilson v. Draper v. Goldberg, P.L.L.C., 443 F.3d 373, 376 (4th Cir. 2006)(stating “Defendants’ actions surrounding the foreclosure proceeding were attempts to collect that debt” under the Fair Debt Collection Practices Act (citations omitted)). 8

FOOTNOTES

8 Defendant asserts that a debt collection does not give rise to a claim under the WVCCPA. Citing Spoor v. PHH Mortgage [*30] Corp., Civ. Act. No. 5:10CV42, 2011 WL 883666 (N.D. W. Va. Mar. 11, 2011). The Court has reviewed Spoorand finds that it primarily focused only on the plaintiff’s request for a loan modification with respect to her WVCCPA claims. The district court in Spoor stated that the defendant’s consideration of the request is not an attempt to collect a debt. 2011 WL 883666, at *7. In the present case, however, the allegations Plaintiff argues supports his claim extend beyond a mere “request” for a modification. Moreover, the Court finds that, to the extent Spoor is contrary to the reasoning in Wilson and Koontz, the Court declines to apply it to this case.

With respect to Plaintiff’s third claim that Defendant illegally returned his payment pursuant to West Virginia Code § 46A-2-115(c), this provision states:

All amounts paid to a creditor arising out of any consumer credit sale or consumer loan shall be credited upon receipt against payments due: Provided, That amounts received and applied during a cure period will not result in a duty to provide a new notice of right to cure; and provided further that partial amounts received during the reinstatement period set forth in subsection (b) of this [*31] section do not create an automatic duty to reinstate and may be returned by the creditor. Defaultcharges shall be accounted for separately; those set forth in subsection (b) arising during such a reinstatement period may be added to principal.

W. Va. Code § 46A-2-115(c). Plaintiff argues that § 46A-2-115(b)defines the reinstatement period as the time “beginning with the trustee notice of foreclosure and ending prior to foreclosure sale,” and he made clear it clear in his Complaint that Defendant returned his payment prior to the requesting a trustee notice of the foreclosure sale. See Compl., at ¶¶7 & 10. Defendant responds by stating that it was within its contractual right to refuse the payment. However, West Virginia Code § 46A-1-107makes it clear that, “[e]xcept as otherwise provided in this chapter, a consumer may not waive or agree to forego rights or benefits under this chapter or under article two-a, chapter forty-six of this code.” W. Va. Code 46A-1-107. Therefore, upon review, the Court finds that Plaintiff’s claim is sufficient to survive a motion to dismiss. Thus, for the foregoing reasons, the Court DENIES Defendant’s motion to dismiss Count V for alleged violations [*32] of the WVCCPA.

V.

CONCLUSION

Accordingly, for the foregoing reasons, the Court DENIES Defendant’s Motion to Dismiss Plaintiff’s claims for breach of contract, fraud, estoppel, and violations of the WVCCPA. However, the Court GRANTS Defendant’s Motion to Dismiss Plaintiff’s negligence claim.

The Court DIRECTS the Clerk to send a copy of this Memorandum Opinion and Order to all counsel of record and any unrepresented parties.

ENTER: March 14, 2013

/s/ Robert C. Chambers

ROBERT C. CHAMBERS, CHIEF JUDGE

6th Circuit Court of Appeals Rules FDCPA Applies to Foreclosures

OPINION APPLIES TO BOTH JUDICIAL AND NON-JUDICIAL STATES

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EDITOR’S ANALYSIS: The Fair Debt Collection Practices Act (FDCPA) 15 USC Sec 1692, has been treated as “off-limits” in mortgage foreclosure actions. The principal thrust of the action is to protect consumers from unfair practices and to prevent debtors from paying a “collector” and finding out they still owe the money because the “collector” was a sham operation. The opinion of many trial judges based upon some appellate decisions was that the FDCPA expressly excluded foreclosure actions.

In this Opinion, the 6th Circuit Court of Appeals, using common sense and basic rules of statutory construction, came to the opposite opinion and it would appear that the opinion will be followed in most states. As it is, anecdotal evidence from Connecticut and other states suggests that trial judges were questioning the legal theory that foreclosures were not about the collection of money.

“Chase and RACJ fraudulently concealed the fact that Fannie Mae owned the loan, and that the original note was not lost or destroyed and was being held by a custodian for Fannie Mae’s benefit. The complaint named plaintiff Lawrence Glazer as someone possibly having an interest in the Klie property, and RACJ served Glazer with process. Glazer answered and asserted defenses. He also notified RACJ that he disputed the debt and requested verification. RACJ refused to verify the amount of the debt or its true owner.”

DENY AND DISCOVER: It is the failure to verify the very thing that lies at the heart of foreclosure defense, nullification of instrument aimed at the mortgage and note, that makes this opinion so powerful. BY re fusing to verify the true owner or the amount of the debt, RACJ was attempting to get around normal due process — that the charges against the debtor be clearly stated and verified. Allowing violations of the FDCPA under the mistaken notion that foreclosure is not about the collection of money allows the collector to finesse the issue of who owns the loan and how much is due. This opens up discovery against the Master Servicer, Subservicer, investment banker, Trustee of the Trust and the trust itself to determine if the trust even exists.

“we hold that mortgage foreclosure is debt collection under the Act. Lawyers who meet the general definition of a “debt collector” must comply with the FDCPA when engaged in mortgage foreclosure. And a lawyer can satisfy that definition if his principal business purpose is mortgage foreclosure or if he “regularly” performs this function. In this case, the district court held that RACJ was not engaged in debt collection when it sought to foreclose on the Klie property. That decision was erroneous, and the judgment must be reversed.7″

ALLONGES, ASSIGNMENTS AND ENDORSEMENTS: THE REAL DEAL

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ALLONGES, ASSIGNMENTS AND INDORSEMENTS

Excerpt from 2nd Edition Attorney Workbook, Treatise and Practice Manual

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ALLONGE: An allonge is variously defined by different courts and sources. But the one thing they all have in common is that it is a very specific type of writing whose validity is presumed to be invalid unless accompanied by proof that the allonge was executed by the Payor (not the Payee) at the time of or shortly after the execution of a negotiable instrument or a promissory note that is not a negotiable instrument. People add all sorts of writing to notes but the additions are often notes by the payee that are not binding on the Payor because that is not what the Payor signed. In the context of securitization, it is always something that a third party has done after the note was signed, sometimes years after the note was signed.

A Common Definition is “An allonge is generally an attachment to a legal document that can be used to insert language or signatures when the original document does not have sufficient space for the inserted material. It may be, for example, a piece of paper attached to a negotiable instrument or promissory note, on which endorsements can be written because there isn’t enough room on the instrument itself. The allonge must be firmly attached so as to become a part of the instrument.”

So the first thing to remember is that an allonge is not an assignment nor is it an indorsement (UCC spelling) or endorsement (common spelling). This distinction was relatively unimportant until claims of “securitization” were made asserting that loans were being transferred by way of an allonge. By definition that is impossible. An allonge is neither an amendment, nor an assignment nor an endorsement of a loan, note, mortgage or obligation. Lawyers who miss this point are conceding something that is basic to contract law, the UCC and property law in each state.

It is important to recognize the elements of an allonge:

  1. By definition it is on a separate piece of paper containing TERMS that could not fit on the instrument itself. Since the documents are prepared in advance of the “closing” with the borrower, I can conceive of no circumstances where the note or other instrument would be attached to an allonge when there was plenty of time to reprint the note with all the terms and conditions. The burden would then shift to the pretender lender to establish why it was necessary to put these “terms” on a separate piece of paper.
  2. The separate piece of paper must be affixed to the note in such a manner as to demonstrate that the allonge was always there and formed the basis of the agreement between all signatories intended to be bound by the instrument (note). The burden is on the pretender lender to prove that the allonge was always present — a burden that is particularly difficult without the signature or initials of the party sought to be bound by the “terms” expressed in the allonge.
  3. The attached paper must contain terms, conditions or provisions that are relevant to the duties and obligations of the parties to the original instrument — in this case the original instrument is a promissory note. The burden of proof in such cases might include foundation testimony from a live witness who can testify that the signor on the note knew the allonge existed and agreed to the terms.
  4. ERROR: An allonge is not just any piece of paper attached to the original instrument. If it is being offered as an allonge but it is actually meant to be used as an assignment or indorsement, then additional questions of fact arise, including but not limited to consideration. In the opinion of this writer, the reason transfers are often “documented” with instruments called an “allonge” is that by its appearance it gives the impression that (1) it was there since inception of the instrument and (2) that the borrower agreed to it. An additional reason is that the issue consideration for the transfer is avoided completely if the “allonge” is accepted as a document of transfer.
  5. As a practice pointer, if the document contains terms and conditions of the loan or repayment, then it is being offered as an allonge. But it is not a valid allonge unless the signor of the original instrument (the note) agreed to the contents expressed on the allonge, since the proponent of this evidence wishes the court to consider the allonge part of the note itself.
  6. If the instrument contains language of transfer then it is not an allonge in that it fails to meet the elements required for proffering evidence of the instrument as an allonge.

ASSIGNMENT: All contracts require an offer, acceptance and consideration to be enforced. An assignment is a contract. In the context of mortgage loans and litigation, an assignment is a document that recites the terms of a transaction in which the loan, note, obligation, mortgage or deed of trust is transferred and accepted by the assignee in exchange for consideration. Within the context of loans that are subject to securitization claims or claims of assignment the documents proffered by the pretender lender are missing two out of three components: consideration and acceptance. The assignment in this context is an offer that cannot and in fact must not be accepted without violating the authority of the manager or “trustee” of the SPV (REMIC) pool.

Like all contracts it must be supported by consideration. An assignment without consideration is probably void, almost certainly voidable and at the very least requires the proponent of this instrument as evidence to be admitted into the record to meet the burden of proof as to foundation.

The typical assignment offered in foreclosure litigation states that “for value received” the assignor, being the owner of the note described, hereby assigns, transfers and conveys all right, title and interest to the assignee. The problem is obvious — there was no value received if the loan was not funded by the assignee or was being purchased by the assignee at the time of the alleged transfer. A demand for records of the assignor and assignee would show how the parties actually treated the transaction from an accounting point of view.

In the same way as we look at the bookkeeping records of the “payee” on the original note to determine if the payee was in fact the “lender” as declared in the note and mortgage, we look to the books and records of the assignor and assignee to determine the treatment of the transaction on their own books and records.

The highest probability is that there will be no entry on either the balance sheet categories or the income statement categories because the parties were already paid a fee at the inception of the “loan” which was not disclosed to the borrower in violation of TILA. At most there might be the recording of an additional fee for “processing” the “assignment”. At no time will the assignor nor the assignee show the transaction as a loan receivable, the absence of which is powerful evidence that the assignor did not own the loan and therefore conveyed nothing, and that the assignee paid nothing in the assignment “transaction” because there was no transaction.

Any accountant (CPA) should be able to render a report on this limited aspect. Such an accountant could recite the same statements contained herein as the reason why you are in need of the discovery and what it will show. Such a statement should not say that the evidence will prove anything, but rather than this information will lead to the discovery of admissible evidence as to whether the party whose records are being produced was acting in the capacity of servicer, nominee, lender, real party in interest, assignee or assignor.

The foundation for the assignment instrument must be by way of testimony (I doubt that “business records” could suffice) explaining the transaction and validating the assignment and the facts showing consideration, offer and acceptance. Acceptance is difficult in the context of securitization because the assignment is usually prepared (a) long after the close out date in the pooling and servicing agreement and (b) after the assignor or its agents have declared the loan to be in default. Both points violate virtually all pooling and servicing agreements that require performing loans to be pooled, ownership of the loan to be established by the assignor, the assignment executed in recordable form and many PSA’s require actual recording — a point missed by most analysts.

If we assume for the moment that the origination of the loan met the requirements for perfecting a mortgage lien on the subject property, the party managing the “pool” (REMIC, Trust etc.) would be committing an ultra vires act on its face if they accepted the loan, debt, obligation, note, mortgage or deed of trust into the pool years after the cut-off date and after the loan was declared in default. Acceptance of the assignment is a key component here that is missed by most judges and lawyers. The assumption is that if the assignment was offered, why wouldn’t the loan be accepted. And the answer is that by accepting the loan the manager would be committing the pool to an immediate loss of principal and income or even the opportunity for income.

Thus we are left with a Hobson’s choice: either the origination documents were void or the assignments of the origination documents were void. If the origination documents were void for lack of consideration and false declarations of facts, there could not be any conditions under which the elements of a perfected mortgage lien would be present. If the origination was valid, but the assignments were void, then the record owner of the loan is party who is admitted to have been paid in full, thus releasing the property from the encumbrance of the mortgage lien. Note that releasing the original lien neither releases any obligation to whoever paid it off nor does it bar a judgment lien against the homeowner — but that must be foreclosed by judicial means (non-judicial process does not apply to judgment liens under any state law I have reviewed).

INDORSEMENTS OR ENDORSEMENTS: The spelling varies depending upon the source. The common law spelling and the one often used in the UCC begins with the letter “I”. They both mean the same thing and are used interchangeably.

An indorsement transfers rights represented by the instruments to another individual other than the payee or holder. Indorsements can be open, qualified, conditional, bearer, with recourse, without recourse, requiring a subsequent indorsement, as a bailment (collection), or transferring all right title and interest. The types of indorsements vary as much as human imagination which is why an indorsement, alone, it frequently insufficient to establish the rights of the parties without another evidence, such as a contract of assignment.

The typical definition starts with an overall concept: “An indorsement on a negotiable instrument, such as a check or a promissory note, has the effect of transferring all the rights represented by the instrument to another individual. The ordinary manner in which an individual endorses a check is by placing his or her signature on the back of it, but it is valid even if the signature is placed somewhere else, such as on a separate paper, known as an allonge, which provides a space for a signature.” Another definition often appearing in cases and treatises is “ the act of the owner or payee signing his/her name to the back of a check, bill of exchange, or other negotiable instrument so as to make it payable to another or cashable by any person. An endorsement may be made after a specific direction (“pay to Dolly Madison” or “for deposit only”), called a qualified endorsement, or with no qualifying language, thereby making it payable to the holder, called a blank endorsement. There are also other forms of endorsement which may give credit or restrict the use of the check.”

Entire books have been written about indorsements and they have not exhausted all the possible interpretations of the act or the words used to describe the writing dubbed an “indorsement” or the words contained within the words described as an indorsement. As a result, courts are justifiably reluctant to accept an indorsed instrument on its face with parole evidence — unless the other party makes the mistake of failing to object to the foundation, and in the case of the mortgage meltdown practices of fabrication, forgery and fraud, by failing to deny the indorsement was ever made except for the purposes of litigation and has no relation to any legitimate business transaction.

Once the indorsement is put in issue as a material fact that is disputed, then the discovery must proceed to determine when the indorsement was created, where it was done, the parties involved in its creation and the parties involved in the execution of the indorsement, as well as the circumstantial evidence causing the indorsement to be made. A blank indorsement is no substitute for an assignment nor is it evidence that any transaction took place win which consideration (money) exchanged hands. Further blank indorsements might be yet another violation of the PSA, in which the indorsement must be with recourse and be unqualified naming the assignee.

A “trustee” of an alleged SPV (REMIC) who accepts such a document would no doubt be acting ultra vires (acting outside of the authority vested in the person purported to have acted) and it is doubtful that any evidence exists where the trustee was informed that the proposed indorsement or assignment involved a loan and a pool which was five years past the cutoff, already declared in default and which failed to meet the formal terms of assignment set forth in the PSA. A deposition upon written questions or oral deposition might clear the matter up by directing the right questions to the right person designated to be the person who represents the entity that claims to manage the SPV (REMIC) pool. In order to accomplish that, prior questions must be asked and answered as to the identity of such individuals and entities “with sufficient specificity such that they can be identified in subsequent demands for discovery or the issuance of a subpoena.”

Throughout this process, the defender in foreclosure must be ever vigilant in maintaining control of the narrative lest the other side wrest control and redirect the Judge to the allegation (without any evidence in the record) that the debt exists (or worse, has been admitted), the default occurred (or worse, has been admitted) and that the pretender is the lender (or worse, has been admitted as such).

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Editor’s Comment:

The figures keep coming in while the words keep coming out the mouths of bankers and realtors. The figures don’t match the words. The net result is that the facts show that we are literally drowning in debt, and we see what happens as a result of such conditions with a mere glance at Europe. They are sinking like a stone, and while we look prettier to investors it is only when we are compared to other places — definitely not because we have a strong economy.

Iceland and other “players” crashed but stayed out of the EU and stayed away from the far flung central banking sleeping arrangements with Banks. Iceland knows that banks got us into this and that if there is any way out, it must be the banks that either lead their way out or get nationalized so their assets can take the hit of these losses. In Phoenix alone, we have $39 BILLION in negative equity. 

This negative equity was and remains illusory. Iceland cut the household debt in each home by 25% or more and is conitinuing to do so. The result? They are the only country with the only currency that is truly recovering and coming back to real values. What do we have? We have inflated property appraisals that STILL dominate the marketplace. 

The absence of any sense of reality is all around us in Arizona. I know of one case where Coldwell Banker, easily one of the most prestigious realtors, actually put lots up for sale asking $40,000 when the tax assessed value is barely one quarter of that amount and the area has now dried up — no natural water supply without drilling thousands of feet or hauling water in by truck. Residents in the area and realtors who are local say the property could fetch at most $10,000 and is unsalable until the water problem is solved. And here in Arizona we know the water problem is not only not going to get solved, it is going to get worse because of the “theory” of global climate change.

This “underwater” mess is political not financial. It wouldn’t exist but for the willingness of the government to stay in bed with banks. The appraisals they used to grant the loan were intentionally  falsified to “get rid of” as much money as possible in the shortest time possible, to complete deals and justify taking trillions of dollars from investors. The appraisals at closing were impossibly high by any normal industry accepted standard and appraisers admit it and even predicted it it in 2005. Banks coerced appraisers into inflating appraisers by giving them a choice — either come in with appraisals $20,000 over the contract price or they will never get work again.

The borrower relied upon this appaisal, believing that the property value was so hot that he or she couldn’t lose and that in fact, with values going so high, it would be foolish not to get in on the market before it went all the way out of reach. And of course there were the banks who like the cavalry came in and provided the apparently cheap money for people to buy or refinance their homes. The cavalry was in a movie somewhere, certainly not in the marketplace. It was more like the hordes of invaders in ancient Europe chopping off the heads of men, women and children and as they lie dying they were unaware of what had happened to them and that they were as good as dead.

So many people have chosen death. They see the writing on the wall that once was their own, and they cannot cope with the loss of home, lifestyle and dignity. They take their own lives and the lives of those around them. Citi contributes a few million to a suicide hotline as a PR stunt while they are causing the distress through foreclosure and collection procedures that are illegal, fraudlent, and based upon forged, robosigned documents with robo-notarized attestations  that the recording offices still won’t reject and the judges still accept.

There is no real real economic recovery without reality in housing. Values never went up — but prices did. Now the prices are returning back to the values left in the dust during the big bank push to “get rid of” money advanced by investors. It’s a game to the banks where the homeowner is the lowly deadbeat, the bottom of the ladder, a person who doesn’t deserve dignity or relief like the bank bailouts. When a person gets financial relief from the government it is a “handout.” When big banks and big business get relief and subsidies in industries that were already profitable, it is called economic policy. REALITY CHECK: They are both getting a “handout” and economic policy is driven by politics instead of common sense. French arisocrats found that out too late as their heads rolled off the guillotine platforms.  

But Iceland and other places in the world have taught us that in reality those regarded as deadbeats are atually people who were herded into middle class debt traps created by the banks and that if they follow the simple precept of restoring victims to their previous state, by giving restitution to these victims, the entire economy recovers, housing recovers and everything resumes normal activity that is dominated by normal market forces instead of the force of huge banks coercing society and government by myths like too big too fail. The Banks are doing just fine in Iceland, the financial system is intact and the government policy is based upon the good of the society as a whole rather the banks who might destroy us. Appeasement is not a policy it is a surrender to the banks.

Cities with the Most Homes Underwater

Michael B. Sauter

Mortgage debt continues to be a major issue in the United States, nearly six years after home prices peaked, according to a report released Thursday by online real estate site Zillow. Americans continue to owe more on their homes than they are worth. Nearly one in three mortgages are underwater, amounting to more than 15 million homes and a total negative equity of $1.19 trillion.

In some of America’s largest metropolitan regions, however, the housing crash dealt a far worse blow. In these areas — most of which are in California, Florida and the southwest — home values were cut in half, unemployment skyrocketed, and 50% to 70% of borrowers now find themselves with a home worth less than the value of their mortgage. 24/7 Wall St. reviewed the 100 largest housing markets and identified the 10 with the highest percentage of homes with underwater mortgages. Svenja Gudell, senior economist at Zillow, explained in an interview with 24/7 Wall St. that the markets with the highest rates of underwater borrowers are in trouble now because of the rampant growth seen in these cities prior to the recession. Once home prices peaked, which was primarily in late 2005 through 2006, all but one of these 10 housing markets lost at least 50% of their median home value.

Making matters worse for families with high negative equity in these markets is the increased unemployment. “If you have a whole lot of unemployment in an area, you’re more likely to see home values continue to decline in the area as well,” says Gudell. While in 2007 many of these markets had average or below average unemployment rates, the recession took a heavy toll on their economies. By 2011, eight of the 10 markets had unemployment rates above 10%, and three — all in California — had unemployment rates of above 16%, nearly double the national average.

24/7 Wall St. used Zillow’s first-quarter 2012 negative equity report to identify the 10 housing markets — out of the 100 largest metropolitan statistical areas in the country — with the highest percentage of underwater mortgages. Zillow also provided us with the decline in home values in these markets from prerecession peak values, the total negative equity value in these markets and the percentage of homes underwater that have been delinquent on payments for 90 days or more.

These are the cities with the most homes underwater.

10. Orlando, Fla.
> Pct. homes w/underwater mortgages: 53.9%
> Number of mortgages underwater: 205,369
> Median home value: 113,800
> Decline from prerecession peak: -55.9%
> Unemployment rate: 10.4% (25th highest)

In 2012, Orlando moved into the top 10 underwater housing markets, bumping Fresno, Calif., to number 11. From its prerecession peak in June 2006, home prices fell 55.9% to $113,800, a loss of roughly $90,000. In 2007, the unemployment rate in the region was just 3.7%, the 17th-lowest rate among the 100 largest metros. By 2011, that rate had increased to 10.4%, the 25th highest. As of the first quarter of this year, there were more than 205,000 underwater mortgages in the region, with total negative equity of $16.7 billion.

9. Atlanta, Ga.
> Pct. homes w/underwater mortgages: 55.5%
> Number of mortgages underwater: 581,831
> Median home value: $107,500
> Decline from prerecession peak: 38.8%
> Unemployment rate: 9.6% (37th highest)

Atlanta is the largest city on this list and the eighth-largest metropolitan area in the U.S. But of all the cities with the most underwater mortgages, it has the lowest median home value. In the area, 55.5% of homes have a negative equity value. With more than 500,000 homes with underwater mortgages, the city’s total negative home equity is in excess of $38 billion. Over 48,000 of these underwater homeowners, or nearly 10%, are delinquent by at least 90 days in their payments, which is also especially troubling. With home prices down 38.8% since June, 2007, the Atlanta area certainly qualifies as one of the cities hit hardest by the 2008 housing crisis.

8. Phoenix, Ariz.
> Pct. homes w/underwater mortgages: 55.5%
> Number of mortgages underwater: 430,527
> Median home value: $128,000
> Decline from prerecession peak: 54.2%
> Unemployment rate: 8.6% (44th lowest)

At 55.5%, Phoenix has the same percentage of borrowers with underwater mortgages as Atlanta. Though Phoenix’s median home value is $21,500 greater than Atlanta’s, it experienced a far-greater decline in home prices from their prerecession peak in June 2007 of 54.2%. This has led to a total negative equity value of almost $39 billion. The unemployment rate also has skyrocketed in the Phoenix area from 3.2% in 2007 to 8.6% in 2011.

7. Visalia, Calif.
> Pct. homes w/underwater mortgages: 57.7%
> Number of mortgages underwater: 33,220
> Median home value: $110,500
> Decline from prerecession peak: 51.7%
> Unemployment rate: 16.6% (3rd highest)

Visalia is far smaller than Atlanta or Phoenix and has less than a 10th the number of homes with underwater mortgages. Nonetheless, the city has been especially damaged by a poor housing market. Home values have fallen dramatically since before the recession, and the unemployment rate, at 16.6% in the first quarter of 2012, is third-highest among the 100 largest metropolitan statistical areas, behind only Stockton and Modesto. Presently, almost 58% of homes are underwater, with these homes carrying a total negative equity of $2.6 billion dollars.

6. Vallejo, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 44,526
> Median home value: $186,200
> Decline from prerecession peak: 60.6%
> Unemployment rate: 11.4% (16th highest)

In the Vallejo metropolitan area, more than 60% of the region’s 73,800 homeowners are underwater. This is largely due to a 60.6% decline in home values in the region from prerecession highs. Through the first quarter of this year, homes in the region fell from a median value of more than $300,000 to just $186,200. Of those homes with underwater mortgages, more than 10% have been delinquent on mortgage payments for 90 days or more.

5. Stockton, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 60,349
> Median home value: $146,500
> Decline from prerecession peak: 64.3%
> Unemployment rate: 16.8% (tied for highest)

With an unemployment rate of 16.8%, Stockton is tied for the highest rate among the 100 largest metropolitan areas. Few cities have been hit harder by the sinking of the housing market than Stockton, where 60.3% of home mortgages are underwater. Though there are only 100,014 houses with mortgages in Stockton, 60,348 of these are underwater and have a total negative home equity of slightly more than $6.9 billion. Meaning, on average, homeowners in Stockton owe at least $100,000 more than their homes are worth.

4. Modesto, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 46,598
> Median home value: $130,600
> Decline from prerecession peak: 64.5%
> Unemployment rate: 16.8% (tied for highest)

Since peaking in December 2005, home prices in Modesto have plunged 64.5%. This is the largest collapse in prices of any large metro area examined. As a result, 46,598 of 77,222 home mortgages in Modesto are underwater. Meanwhile, the unemployment rate rose to 16.8% in 2011. This number was 7.9 percentage points above the national average of 8.9% and almost double Modesto’s 2007 unemployment rate of 8.7%.

3. Bakersfield, Calif.
> Pct. homes w/underwater mortgages: 60.5%
> Number of mortgages underwater: 70,947
> Median home value: $116,700
> Decline from prerecession peak: 57.0%
> Unemployment rate: 14.9% (5th highest)

From its peak in May 2006, the median home value in Bakersfield has plummeted from more than $200,000 to just $116,700, or a 57% loss of value. From 2007 through 2011, the unemployment rate increased from 8.2% to 14.9% — the fifth-highest rate in the country. To date, more than 70,000 homes in the region have underwater mortgages, with total negative equity of just over $6 billion.

2. Reno, Nev.
> Pct. homes w/underwater mortgages: 61.7%
> Number of mortgages underwater: 46,115
> Median home value: $150,600
> Decline from prerecession peak: 58.3%
> Unemployment rate: 13.1%

There are fewer than 75,000 households in Reno, Nevada. Yet 46,115 home mortgages in the city are underwater, accounting for 61.7% of mortgaged homes. From January 2006 through the first quarter of 2012, home prices were more than halved, and negative home equity reached $4.39 billion. Additionally, the unemployment rate almost tripled in rising from 4.5% in 2007 to 13.1% by 2011. In 2007, Reno had the 54th-worst unemployment rate among the 100 largest metros. By 2007, Reno had the eighth-worst unemployment rate.

1. Las Vegas, Nev.
> Pct. homes w/underwater mortgages: 71%
> Number of mortgages underwater: 236,817
> Median home value: $111,600
> Decline from prerecession peak: 63.2%
> Unemployment rate: 13.9%

At 71%, no city has a greater percentage of homes with underwater mortgages than Las Vegas. The area with the second-worst percentage of underwater mortgages, Reno, has less than 62% mortgages with negative. The corrosive effects the housing crisis had on Las Vegas are evident in the more than 200,000 home mortgages that are underwater, 14.3% of which are at least 90 days delinquent on payments. Additionally, home values have dropped 63.2% from their prerecession peak, the third-greatest decline among the nation’s 100 largest metropolitan areas. Largely because of the collapse of the area’s housing market, unemployment in the Las Vegas area has soared. In 2007, the unemployment rate was 4.7%, only marginally different from the nation’s 4.6% rate. Yet by 2011, the unemployment rate had increased to 13.9%, considerably higher than the nationwide 8.9% unemployment rat.e.


Deficiency Judgments on the Rise: NEXT BIG CRISIS

Editor’s Note: You see they have no shame. If they can get money they are going after it only this time the ones going after deficiency judgments and collections are usually not even the original people who foreclosed. This is why you MUST fight it, file motions to set aside for fraud, petition for bankruptcy relief or use other means to even the score and level the playing field. The foreclosure was in all probability a sham, defrauding both the homeowner and the investor, and the collection is just a numbers game.
On the other hand, articles like these are planted to scare people away from strategic defaults. Keep in mind that deficiency judgments are rarely successful in the best of circumstances. Usually the former homeowner had no significant assets other than his home and many states severely limit creditors’ options. So they are basically left with the usual scare tactics.

The moral is do what you need to do, talk to a savvy lawyer, and don’t let the financial service industry be the source of your information.
Lenders Pursue Mortgage Payoffs Long After Homeowners Default

Jan. 28 (Bloomberg) — When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

“The big dogs get a bailout, and the little man gets no mercy,” said King, 39, referring to the U.S. government’s rescue of banks and other financial institutions.

While there are no statistics on the number of deficiency judgments approved by courts, the Federal Deposit Insurance Corp. tracks the amount banks collect after defaulted loans were written off.

These mortgage recoveries rose 48 percent to a record $1.01 billion in the first nine months of last year compared with the year-earlier period, according to the Washington-based regulator. Recoveries on defaulted home-equity loans almost doubled to $392 million, the FDIC data shows.

The figures don’t include money retrieved by trusts overseeing mortgage-backed securities, such as the one that holds the loan on King’s former home, or efforts by distressed- asset funds and companies that buy bad loans to profit from collection rights. Judgments such as the one levied against King usually tack on court fees, fines and interest.

‘Next Big Crisis’

Deficiency judgments were rare in the 15 years since the last real estate slump, said Ben Hillard, a former investment banker who now is a real estate and corporate attorney at Hillard & Rogers in Largo, Florida.

“The banks have been too underwater with foreclosures to spend much time on deficiency judgments, but that’s beginning to change,” Hillard said in an interview. “This is going to be the next big crisis.”

Almost 4.5 percent of mortgaged U.S. homes were in foreclosure during the third quarter, the highest rate in the 37 years of tracking the data, the Mortgage Bankers Association said Nov. 19. A record one in every 10 mortgages was at least one payment overdue in the same period, the Washington-based trade group reported.

The Obama administration is seeking to modify as many as 4 million loans by 2012 to prevent foreclosures through the Home Affordable Modification Program, which cuts monthly payments to about a third of borrowers’ income. By the end of December, the program was responsible for more than 850,000 modifications, the Treasury Department said in a Jan. 15 report.

20-Year Window

The federal government spent $230 billion in the year ended in September to support homeowners, according to the Congressional Budget Office in Washington. Those efforts didn’t help people who had already walked away from their houses.

In states such as Florida, courts give mortgage holders as long as five years to seek a deficiency judgment and, if granted, up to 20 years to collect. Usually, they have the option of renewing the judgment if it’s not paid off within 20 years.

About a third of U.S. states, including California and Arizona, prohibit collection efforts on primary residences after foreclosure. In some cases, homeowners waive that protection if they refinance. Most states allow collection on unpaid home equity loans.

Depression-Era Protections

The laws in states that protect some borrowers stem from the Great Depression in the 1930s, when a lack of bidders at foreclosure auctions caused deficiencies that, with added fees and interest, sometimes were bigger than the original loan amount, according to a 1934 Virginia Law Review article by Sol Phillips Perlman. Today, many courts measure the shortfall using a property’s market value at the time of foreclosure rather than auction results.

The likeliest candidates for deficiency judgments are so- called rational defaults, said Larry Tolchinsky, a real estate attorney in Hallandale Beach, Florida. In those cases, people who are current on their mortgages decide to walk away from a property because its value has sunk so far below their loan balance they have no hope of recouping the loss.

About 21 percent of American homeowners owe more on their mortgages than their properties are worth, according to Zillow.com, a Seattle-based real estate data firm.

“Walking away from a property comes with a cost, especially for people who otherwise have good credit,” Tolchinsky said in an interview. “The bank is going to pull your credit report, and if you’re current on your other bills they are going to come after you and potentially ruin you.”

Fine Print

It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on, according to Hillard, the attorney in Largo. In a short sale, lenders agree to let borrowers sell a home for less than the mortgage balance.

“Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they are “off the hook.”

That was the case when two of his clients, Brigitte and John Howard, sold their home in New Port Richey, Florida, almost two years ago without using a lawyer to check the bank’s short- sale agreement.

$20,000 Shock

“We got a call out of the blue saying we owed $20,000,” said Brigitte Howard, 45. “It was a shock. There was no mention in the short-sale contract that the bank might come after us for the difference.”

The money King owes to the Soundview Home Loan asset-backed security that holds the mortgage on his former Coral Gables condominium consists of $38,000 for unpaid principal and almost $6,000 in legal fees and interest accrued prior to the ruling. According to the judgment, the security can charge 8 percent interest until he pays off the debt.

King, who said his default was caused by a reduction in his income, now rents near Fort Lauderdale, Florida, where he teaches ballroom dancing.

“I thought the foreclosure was the worst of a bad situation, but it’s not,” said King. “The people who got sucked into the real estate bubble are still paying for it, even after they’ve taken our homes.”

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net

Last Updated: January 28, 2010 00:01 EST

You Are Not the Bad Guy

NOW AVAILABLE ON AMAZON KINDLE!
THE PHONE RINGS. YOUR NERVES ARE JANGLED. YOU KNOW YOU ARE “LATE” IN YOUR PAYMENTS. PROBABLY ANOTHER COLLECTION CALL. FEAR COURSES THROUGH YOUR VEINS LIKE ACID TOGETHER WITH A RISING TIDE OF EMBARRASSMENT.

SO HERE IS WHAT I HAVE TO SAY ABOUT THAT.

First of all if you look up the collections firm, mortgage servicer, or other party you will find dozens of entries on most firms about behavior that easily crosses the line from legal to illegal. Second of all they might have the wrong person (see article below). Third of all they probably have the wrong information even if they have the right information. So don’t be so scared of them.
Fourth — and this probably ought to be first — in a culture created by endless ads and product placement, where our consciousness has been switched from savings and prudence to credit and spending, where 30% interest is not usury, where $35 fees apply to $2 overdrafts, I challenge the core notion that the debt is or ever was valid. In plain language I know what the law says, but I also know what is right and wrong.
It is YOU who are the victim and it is THEM who are the predators and tricksters. I know the media, politicians and pundits say otherwise. They are wrong. So the point of this blog is to get you to give up the myth that this was somehow mostly your fault and see yourself as one of tens of millions of victims who seek justice. The laws say you have rights  — like usury where most states have a legal limit of interest which if violated invalidates the debt and entitles the debtor to treble damages. Yes there are exceptions but not these creditors and collectors do not qualify under the exceptions. They only win in collection or foreclosure if you don’t fight it out with them.

In most cases (actually nearly all cases) the creditor does not have the resources to do anything other than maintain a phone bank with people who have a script in front of them containing key words and phrases designed to scare the crap out of you. The credit card companies, the mortgage pretender lenders and servicers lack resources to sue everyone at once.

As you have seen on these pages there are a number of offensive and defensive strategies that can put the “collector” in hot water with fines and payment of damages to you for using improper tactics, withholding information (like the fact that your mortgage was paid several times over but they still want YOU to pay it again). Use the Debt validation Letter, the Qualified  Written request, complaints to FTC, FED, OTC etc. Send letters to consumer protection divisions of your state attorney general. report them to the economic crimes division of local police, sheriff and U.S. Attorney’s office. GO ON THE OFFENSIVE.

THE WALK AWAY STRATEGY: There are many reports of lawyers and other advisers suggesting that you simply walk away from the mountain of debt, move to another residence (the rent is bound to be far less expensive than the old carrying charges on the inflated value of the old house), and start over. They recommend that you maintain your phone number by switching services and that you pull the plug. So the collector only gets voice mail and confirmation that this is still your phone number. They recommend that you get a new unlisted number even under another person’s name if that is possible. And then start the march toward saving money, getting prepaid credit and debit cards and re-establishing a high credit score. It’s a lot less expensive than bankruptcy. After the statute of limitations has run they have no right to go after you even if it was a valid debt. This is the advice given by others. Livinglies has no comment.
November 29, 2009
About New York

Hello, Collections? The Worm Has Turned

The phone rang. A woman from a law firm representing a collection agency wanted to know if Mark Hoyte was Mark Hoyte, and he said he was. They were calling to collect $919 on a Sears-Citi card.

Mr. Hoyte said he never had that credit card.

Then the woman wanted to know if his Social Security number ended in 92, and Mr. Hoyte said no, it ended in 33.

“She says to me, ‘Your date of birth is in 1972,’ ” Mr. Hoyte, 46, recalled in an interview.

Clearly, they had the wrong Mark Hoyte. But that did not stop the lawyers at Pressler & Pressler from suing him. They swore out a complaint and sent a summons to Mr. Hoyte, ordering him to be in court last Monday.

Then things took a rare turn.

Every day of the year, 1,000 cases on average are added to the civil court dockets in New York City over credit card debt — a high-volume, low-accuracy moment of reckoning. The suits are usually brought by collection companies that purchase the debt for pennies on the dollar from card issuers and then work with a cadre of law firms that specialize in collection work.

Conducting a digital dragnet, they troll through commercial databases searching for debtors. Because of the vast sloppiness and fraud involved, Attorney General Andrew M. Cuomo has shut down two of the collection firms and is suing 35 law firms tied to the business.

A person who blows off a civil court summons — even if wrongly identified — faces a default judgment and frozen bank accounts. But to date, there have been few penalties against collectors for dragging the wrong people into court.

Until Mr. Hoyte turned up last week in Brooklyn.

After trying to settle the case in the hallway — the 11th floor of 141 Livingston Street is an open bazaar of haggling — the collections lawyer realized he had the wrong man. He got Mr. Hoyte to sign an agreement that would end the case against him, but not against the Mark Hoyte who actually owed the $919.

In front of the judge, the lawyer, T. Andy Wang, announced that the parties had reached a stipulation dismissing this Mr. Hoyte from the suit.

Not so fast, said the judge, Noach Dear.

“Why didn’t you check these things out before you take out a summons and a complaint?” Judge Dear asked. “Why don’t you check out who you’re going after?”

Mr. Wang said that Pressler & Pressler used an online database called AnyWho to hunt for debtors.

“So you just shoot in the dark against names; if there’s 16 Mark Hoytes, you go after without exactly knowing who, what, when and where?” Judge Dear asked.

Mr. Wang replied, “That’s why the plaintiff is making an application to discontinue.”

The judge turned to Mr. Hoyte, who works as a building superintendent, and asked him how much a day of lost pay would cost. Mr. Hoyte said $115.

“Do you think that’s fair?” Judge Dear asked Mr. Wang. “That he should lose a day’s pay?”

“My personal opinion,” Mr. Wang said, “would not be relevant to the application being sought.”

The judge said he was prepared to dismiss the case and wanted Mr. Hoyte compensated for lost wages.

“Your honor,” Mr. Wang said, “I’m personally not willing to compensate him.”

No, the judge said; he meant that the law firm, Pressler & Pressler — one of the biggest in the collection industry — should pay the $115. He would hold a sanctions hearing, a formal process of penalizing the law firm for suing the wrong man.

Under questioning by the judge, Mr. Hoyte recounted being called about the debt, providing his Social Security number and date of birth, and being summoned to court anyhow.

The collections lawyer then began to interrogate Mr. Hoyte.

“You claim you told Pressler & Pressler it wasn’t you,” Mr. Wang said to Mr. Hoyte. “Did you send them proof, as in a copy of your Social Security number with only the last four digits visible?”

“No,” Mr. Hoyte said. “They didn’t ask for it.”

“But you didn’t send any written proof of the claim that it was not you?” Mr. Wang said.

“I told them on the phone it’s not me,” Mr. Hoyte said.

Mr. Wang appeared outraged.

“So without any written proof that it’s not you, you would expect someone just, you know, to go on say-so?” he demanded. “Is that correct?”

Alice had reached Wonderland: The lawyer who had sued the wrong man was blaming the wrong man for getting sued.

Judge Dear cut off the questioning. He told Mr. Wang and Mr. Hoyte to come back to court in January.

“If, somehow, counsel, you decide that you’re going to compensate him for his time off,” Judge Dear said, “I will reconsider sanctions.”

E-mail: dwyer@nytimes.com

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