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Ocwen Admission Confounds Judges and Experts

This is a blatant attempt at deception  — a deceit without which none of the Trusts would be recognized as legal entities much less the owner of loans. Ocwen is admitting that there is no single owner of the loan it is allegedly “servicing.” “There is no single owner of the account, but rather the account is one of many in a securitized investment trust.”

For the uninitiated, this statement might suffice or at least be threatening enough as a challenge to their experience and intelligence to direct them away from the central false assertion that the trusts own any loan. They don’t.

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Get a consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps). to schedule CONSULT, leave message or make payments. It’s better than calling!

Hat Tip Bill Paatalo

see Ocwen Responsive Letter – CFPB – 11-03-2017

In this real live case, Ocwen is fulfilling its job that includes obfuscation as one of its paramount duties. After first “answering” the CFPB requests with obfuscation it then states “The ownership status of the account is based upon our review of our records as of the date of this letter.” It doesn’t say that the information is correct or even believed to be correct. It doesn’t say they performed due diligence to determine whether a true chain of ownership exists, combing the various records of “predecessors.”

Nor is there a statement that Ocwen is authorized to service the account. It simply says that it IS servicing the account. And of course then they do not assert the basis of their authority since they never asserted their authority. It is implied. It is assumed. In court, it might well be presumed by the court, the foreclosure mill attorney and even by the borrower and the borrower’s attorney. This is one of the errors that snatches defeat from the jaws of victory. An attack on what is missing instead of trying to dodge what is there would result in far more victories for homeowners.

The attorney’s client is Ocwen. Ocwen is impliedly asserting authority to service but can’t show it. In one recent case of mine, they came in with a Power of Attorney signed by someone who purportedly executed the instrument on behalf of Chase. The problem was that Chase was never mentioned before in any pleading, documents or testimony. The POA was false.

Back to ownership: “there is no single owner” implies that there are many owners. There are several problems with that assertion or implication that involve outright lying. Ocwen is saying that the loan is in a securitized investment trust which certainly would imply that the loan is not in transit nor is it owned by more than one trust.

Further if the reference (omitted) is to investors, that too is a lie in most cases. The certificate indenture usually contains the express statement that the holder of the certificate receives no right, title or interest to the debt, note or mortgage in “underlying” loans (which have never been acquired by the trust anyway).

So what are we left with? No single owner which means that the securitized investment trust doesn’t own it because that is one single entity. Multiple owners does not refer to investors because the express provisions on their certificates say they have no ownership of the debt, note or mortgage in the alleged loan.

The counterintuitive answer is that the bank’s are saying there is no owner. But there is an owner. It is a group of investors whose money was used to fund or acquire the loan. This was not done through any trust, as they intended and as was required by the “securitization” documents. If that was the case then the trust would have been named as lender or as holder in due course. That never happened.

But the holders of worthless securities can claim an equitable interest in the loan and perhaps even the collateral. In order to establish that interest the investors must go to a court of competent jurisdiction. But in order to do that the investors must know about the specific loan transaction(s), which they don’t. The fact that they don’t know about it and can’t exercise their rights does not mean that legally, anyone can intervene and assert ownership rights.

Ten years ago I said get rid of the current servicers and stick a government agency in as intermediary so that investors, as real parties in interest and borrowers as real parties in interest could do what the lending industry normally does best — work this out so that nobody loses everything and nobody gets a windfall. This could have all been over years ago and the impact on the economy would have been a powerful stimulus leaving no inherent weakness in our economy or our currency.

Unfortunately the courts strayed from making legal decisions and instead made a political decision to save the banking industry at the expense of homeowners.




A Little Bit of Foreclosure Soap Won’t Wash Away Those Unclean Hands

One who comes into equity must come with clean hands else all relief will be denied him regardless of merit of his claim and is not essential that act be a crime; it is enough that it be condemned by honest and reasonable men” Roberts v Roberts, 84 So.2d 717 (Fla. 1956)
By Joel Sucher, Contributor
New York filmmaker/author/blogger

It sounds almost biblical; a pronouncement from up high and a warning that those who crave riches must do so by ethical means: so-called “clean hands.” In other words: the ends don’t justify the means and it’s actually a legal theory with a bit of provenance and the quote itself is from a Florida decision, circa 1956, which is now being used with some efficacy in foreclosure cases; albeit in states where the courts oversee the process (Florida being one).


A little bit of soap may — as the Jarmels famously sung — wash the lipstick off your face or powder from you chin but it will never, never wash away the fraud — according to this doctrine — perpetrated by those in the financial services industry who relentlessly pursue home seizures via fraudulent note endorsements, mortgage assignments and robo-signed affidavits; supporting materials necessary to prove the right (a/k/a “standing”) to pursue a foreclosure.


Unfortunately, in all too many cases the banking/foreclosure industry has have gotten away with it. One only needs to review the collateral damage (think, “homeowners”) that followed the 2008 subprime meltdown to see the devastation wrought to communities around the country and let’s not forget those impacted were folk of all political leanings.

Bruce Jacobs, a Miami based lawyer and former state prosecutor, is riding point in a legal charge to make good use of “unclean hands” as a foreclosure defense and his arguments have begun to resonate with some Florida judges.


One of his cases — Wells Fargo v John Riley — was dismissed last December in a Palm Beach, Florida Circuit Court, after the Judge found plaintiffs had failed to scrub unclean hands; to wit: Wells Fargo and its servicer, JP Morgan Chase (both parties to the $25 billion National Mortgage Settlement) relied on false testimony and failed to explain how an endorsement from the original lender, Washington Mutual (remember them? The financial institution notable for being history’s biggest bank failure) came to be affixed to the note years after WAMU went out of business. Finally, the court found that the “purported mortgage loan schedules” was a phony; missing essential data (plaintiff’s witness first claimed that this was done to protect the borrower’s “privacy.” The Judge forced the witness, upon cross-examination, to admit that it had nothing to do with privacy. It was simply missing).


It seemed that the plaintiffs had taken one too many Mulligans in trying to justify how Wells Fargo had obtained the mortgage and note which finally led the Judge to this conclusion:

The court finds Plaintiff failed to prove every element of its case by substantial competent evidence and has unclean hands, and enters judgement in favor of the Defendant, John Riley.

In short, the good guys — at least in this case — win.

To read the rest of the article continue here:

Wells Fargo, Ocwen and Fake REMIC Trust Crash on Standing

What is surprising about this case is that there was any appeal. The trial court had no choice but to dismiss the foreclosure claim.

  1. A copy of the note without an indorsement was attached to the complaint. This leads to the presumption that the indorsement was attached after the complaint was filed. Standing must be proven to ex isa at the time the suit was filed.
  2. The robo-witness could have testified as to the date the indorsement was affixed but he said he didn’t know.
  3. The robo-witness was unable to testify that the default letter had been sent.
  4. It didn’t help that the foreclosure case had been brought before by two different parties and then dismissed.
  5. Attorneys attempted to admit into evidence an unsigned Pooling and Servicing Agreement that could not be authenticated and was merely “a copy of a printout obtained from the SEC website”. This is an example of how court’s are rejecting the SEC website as a government document subject to judicial notice or even introduction into evidence without competent testimony providing the foundation for introducing the PSA for a fake trust.
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Get a consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps). to schedule CONSULT, leave message or make payments. It’s better than calling!

see Wells Fargo, as trustee v Madl

Note that the style of the case shows that Wells Fargo was never the Plaintiff. The purported or implied trust was the named Plaintiff. But as Wells Fargo explained in its own article, the Trust is not the Plaintiff and neither are the certificate holders the Plaintiff because their certificates most often expressly state that the holder of the certificate does NOT have any right, title or interest in the “underlying” loans.

In fact if you read it carefully you will see that no trust is actually named or mentioned. AND the failure of the “trust instrument” (the PSA) shows that the trust was never created and never existed. An unsigned, incomplete document downloaded from a site ( that anyone can access to upload documents is not evidence.

Financial Industry Caught with Its Hand in the Cookie Jar

Like the infamous NINJA loans, the REMICs ought to be dubbed NEITs — nonexistent inactive trusts.

The idea of switching lenders without permission of the borrower has been accepted for centuries. But the idea of switching borrowers without permission of the “lender” had never been accepted until the era of false claims of securitization.

This is just one example of how securitization, in practice, has gone far off the rails. It is significant to students of securitization because it demonstrates how the debt, note and mortgage have been separated with each being a commodity to sell to multiple buyers.

Let us help you analyze your case: 202-838-6345
Get a consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps). to schedule CONSULT, leave message or make payments. It’s better than calling!


Leveraged loan investors are now concerned about whether they are funding a loan to one entity and then “by succession” ending up with another borrower with a different credit profile, reputation, etc. You can’t make this stuff up. This is only possible because the debt has been separated from the promissory note — the same way the debt, note and mortgage were treated as entirely separate commodities in the “securitization” of residential mortgage debt. The lack of connection between the paper and the debt has allowed borrowers to sell or transfer their position as borrower to another borrower leaving the “lender” holding a debt from a new borrower. This sounds crazy but it is nevertheless true. [I am NOT suggesting that individual homeowners try this. It won’t work]

Keep in mind that most certificates issued by investment bankers purportedly from nonexistent inactive trusts (call them NEITs instead of REMICs) contain an express provision that states in clear unequivocal language that the holder of the certificate has no right, title or interest to the underlying notes and mortgages. This in effect creates a category of defrauded investors using much the same logic as the use of MERS in which MERS expressly disclaims and right, title or interest in the money (i.e., the debt), or the mortgages that reregistered by third party “members.”

Of course those of us who understand this cloud of smoke and mirrors know that the securitization was never real. The single transaction rule used in tax cases establishes conclusively that the only real parties in interest are the investors and the borrowers. Everyone else is simply an intermediary with no more interest in any transaction than your depository bank has when you write a check on your account. The bank can’t assert ownership of the TV you just paid for. But if you separate the maker of the check from the seller of the goods so that neither knows of the existence of the other then the intermediary is free to make whatever false claims it seeks to make.

In the world of fake securitization or as Adam Levitin has coined it, “Securitization Fail”, the successors did not pay for the debt but did get the paper (note and mortgage or deed of trust). All the real monetary transactions took place outside the orbit of the falsely identified REMIC “Trust.” The debt, by law and custom, has always been considered to arise between Party A and Party B where one of them is the borrower and the other is the one who put the money into the hands of the borrower acting for its own account — or for a disclosed third party lender. In most cases the creditor in that transaction is not named as the lender on the promissory note. Hence the age-old “merger doctrine” does not apply.

This practice allows the sale and resale of the same loan multiple times to multiple parties. This practice is also designed to allow the underwriter to issue investors a promise to pay (the “certificate” from a nonexistent inactive trust entity) that conveys no interest in the underlying mortgages and notes that supposedly are being acquired.

It’s true that equitable and perhaps legal rights to the paper (i.e., ownership) have attached to the paper. But the paper has been severed from the debt. Courts have inappropriately ignored this fact and stuck with the presumption that the paper is the same as the debt. But that would only be true if the named payee or mortgagee (or beneficiary on a Deed of Trust) were one and the same. In the real world, they are not the same. Thus we parties who don’t own the debt foreclosing on houses because the real parties in interest have no idea how to identify the real parties in interest.

While the UCC addresses situations like this Courts have routinely ignored statutory law and simply applied their own “common sense” to a nearly incomprehensible situation. The result is that the courts apply legal presumptions of facts that are wrong.

PRACTICE NOTE: In order to be able to litigate properly one must understand the basics of fake securitization. Without understanding the difference between real world transactions and paper instruments discovery and trial narrative become corrupted and the homeowner loses. But if you keep searching for things that ought to exist but don’t — thus undercutting the foundation for testimony at deposition or trial — then your chances of winning rise geometrically. The fact is, as I said in many interviews and on this blog as far back as 2007, they don’t have the goods — all they have is an illusion — a holographic image of an empty paper bag.

The Federal Reserve terminates anemic Enforcement Actions allowing Fraudulent Foreclosure Practices to continue.

The Federal Reserve is wrapping up its ineffective sanctions against the five U.S. banks who were accused of improper handling of post-crisis mortgage foreclosures.  On Friday, the Federal Reserve Board announced another $35.1 million in civil penalties against five banks as part of its effort to terminate enforcement actions, issued in 2011 and 2012, against a total of 10 banks related to residential mortgage loan servicing and foreclosure processing.

The enforcement case has been ongoing for seven years. New penalties include $14 million for Goldman Sachs, $8 million for Morgan Stanley, $4.4 million for U.S. Bancorp, $3.5 million for PNC Financial Services Group Inc. and $5.2 million for CIT Group Inc., which had purchased OneWest Bank — the firm that bought IndyMac.   Despite the fact that the fines and sanctions have done nothing to curtail the fraudulent practices, the Fed is ending the program.


From the statement:

“When it issued the mortgage servicing enforcement actions, the Board announced that it believed monetary penalties were appropriate for all firms subject to the actions for their mortgage servicing deficiencies The Board previously assessed penalties against the other firms under mortgage servicing enforcement actions. With the penalties announced today, the Board has now assessed penalties totaling approximately $1.1 billion against all Federal Reserve supervised firms under mortgage servicing enforcement actions.

With the swamp creatures in control of the Fed under Trump including Mnuchin who was chairman of OneWest and Comptroller of the Currency Joseph Otting who was its chief executive officer when the firm faced earlier foreclosure sanctions- is it any surprise that the Federal Reserve is disinterested in pursuing the ongoing fraud?

The Fed had previously fined other banks, including Bank of America Corp., JPMorgan Chase & Co., Ally Financial Inc., Suntrust Banks Inc. and HSBC Holdings Plc.

Illegal Foreclosures

After the mega-banks were accused of filing thousands of defective foreclosures in 2011, the Fed and other regulators mandated that lenders fix residential mortgage servicing and foreclosure issues. The Fed’s termination of the earlier enforcement actions means the regulator is satisfied that the firms have improved their practices, the agency said.

IndyMac Bancorp failed in 2008 as one of the mortgage meltdown’s major casualties. That same year, Mnuchin, a former Goldman Sachs banker, led a group of investors that included hedge fund billionaire John Paulson and finance giant George Soros in buying the bank.

IndyMac’s name was changed to OneWest and Mnuchin hired Otting, a veteran West Coast banker, to run it. The firm — beset by the foreclosure scrutiny — was sold off to CIT in 2015, and Mnuchin and Otting joined the Trump administration last year.

The 2011 actions from the Fed, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. were among the largest coordinated enforcement efforts in the years following the crisis but failed to implement any true protections for homeowners.  The financial penalties assessed provided no benefit to homeowners who were wrongfully foreclosed on.

Ineffective Effort

The regulators first created the Independent Foreclosure Review in which the largest U.S. mortgage firms were ordered to go through thousands of foreclosures looking for errors and rectify the problems, but the agencies decided that effort was overly time-consuming and ineffective (of course they did).

In 2013 they decided to fine the banks hundreds of millions of dollars and ordered them to pay out about $3.6 billion in cash to compensate borrowers.  There is no evidence this has been done,  and many servicers continue to have problems complying with orders to fix their internal systems and predatory practices.

The OCC’s bank settlements were completed a year ago, including fines of $70 million for Wells Fargo & Co. and $48 million for JPMorgan after the two were accused of failing to move fast enough to satisfy the earlier orders.  There has been no accounting where the $70 million has gone and it has not benefited homeowners.

By 2014, the Fed was faulted by its watchdog organization for its substandard handling of complex settlements. Its Office of Inspector General said poor preparation and management led to poor execution of the settlement with the mortgage servicers.

Additionally, the Board announced the termination of a supplemental agreement with Ally, issued in 2012 after Ally’s mortgage servicing subsidiaries sought out bankruptcy protection, which addressed the parent company’s contingent obligations under the 2011 enforcement action against Ally. According to the Fed, this agreement is no longer necessary after the termination of the 2011 action.

The Fed also announced the termination of enforcement actions issued against two servicers, Lender Processing Services, succeeded by ServiceLink, and against MERSCORP. bbBoth companies faced enforcement actions tied to foreclosure-related services.  If this isn’t a “get-out-of-Jail” free card for all the bad-players, and permission to continue fraudulent foreclosures, loan modification fraud, and continue to fabricate and forge documents- then what is?

“Alternative Facts” Promoted by Banks

Banks have the money and therefore stand closest to the microphone of media. For every report that foreclosures are continuing or rising in number there are 20 reports that the foreclosure crisis is over. This report shows that in New York City foreclosure continue at the same rate as the 2008 recession.

The press has failed, intentionally or unintentionally to give the true facts: While there are accurate reports from small towns that the foreclosure crisis is over, the overwhelming evidence is that the overall pace is stepping up and in many cases never abated.

The banks got increasingly sophisticated in the distribution of foreclosure starts. Where the market heats up they lean back and start in another community. This makes these situation appear under control. The fact remains that the foreclosures are wrongful and should be stopped.




CitiMortgage owes Borrower Duty of Care regarding Loan Modification Efforts (California’s 3rd District Court of Appeals): Rossetta v. CitiMortgage

Adding to the split of authority among California’s various state and federal appellate courts, the Third Appellate District ruled that a loan servicer may owe a duty of care to a borrower through application of the “Biakanja” factors, even though its involvement in the loan does not exceed its servicing duties.

Thus, the Third District “assumed without deciding” that California Civil Code § 2923.6(g) offers an affirmative defense to a negligence claim in loan modification cases where the borrower submits multiple loan modification applications.

A copy of this opinion in Rossetta v. CitiMortgage, Inc. is available at:  Opinion.

To determine whether a general duty of care exists, California courts balance the six factors used by the California Supreme Court in Biakanja v. Irving, 49 Cal.2d 647 (1958):  (1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to him, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant’s conduct and the injury suffered, (5) the moral blame attached to the defendant’s conduct, and (6) the policy of preventing future harm.”

In 2001, a borrower obtained a loan secured by a deed of trust to her home.  The deed of trust was later assigned to the defendant servicer.  In 2010, the borrower was laid off from her job and sought a loan modification from the servicer.  In May 2010, the servicer allegedly told the borrower that it “would be unable to assist her unless she was at least three months delinquent in her monthly mortgage payments, and thus in default.”

In June 2010, the borrower missed payments on the loan.  On Aug. 1, 2010, the servicer allegedly informed the borrower’s agent that she might qualify for a HAMP loan modification.

On Aug. 9, 2010, CitiMortgage sent the borrower a letter approving her request for a repayment plan.  The borrower allegedly believed that she would receive a permanent loan modification upon completion of the repayment plan and agreed to the repayment plan’s terms.  After making three payments, the borrower contacted the servicer regarding the loan modification.  CitiMortgage told the borrower to continue making payments in which she did.

Apparently this was CitiMortgage’s modus operandi from 2009 to around 2011.  On Jan. 3, 2011, CitiMortgage denied the borrower’s application for a HAMP modification for failure to provide the  necessary documents the borrower had submitted repeatedly.  The borrower then supposedly spoke with a CitiMortgage customer disservice representative who stated that her application was denied because the borrower had failed to submit a statement from the State of California declaring she was permanently disabled.  Allegedly, the State of California does not issue such a document, and CitiMortgage in its usual game of cat and mouse modifications “requested [this] nonexistent document to further delay the process and frustrate [the borrower].”

In July 2011, the borrower applied for another HAMP modification.  CitiMortgage allegedly requested the same documents over and over again.  In particular, it supposedly requested that the borrower produce her entire loan application on two separate occasions, requesting duplicates of other previously submitted documents by fax (in which she had the fax confirmation).

While the second application was pending, the borrower ceased receiving disability insurance and began receiving unemployment insurance.  CitiMorgage then  demanded that the borrower submit yet another application and supporting documents.  In November 2011, the borrower returned to work.  CitiMortgage once again demanded additional documents due to the “change in circumstances.”  The borrower allegedly complied with CitiMortgage’s demands and submitted the requested documents.

On Jan. 18, 2012, CitiMortgage denied the borrower’s application for a HAMP modification, due to an “excessive forbearance amount”.  The borrower asserted that the forbearance amount would have been significantly less had she been given a permanent loan modification “over a year earlier as had been represented.”

On April 6, 2012, one of the servicer’s representatives allegedly told the borrower that she “was approved for another trial loan modification and that upon completion, [she] would receive a permanent loan modification with a 2% fixed interest rate for five years and a principal reduction.”  The borrower again submitted the requested documents but never received either a HAMP trial period plan (TPP) or a permanent loan modification.

The borrower continued her effort to obtain a loan modification, without success.  In December 2012, and she filed for bankruptcy protection.

The borrower then filed suit against CitiMortgage for intentional misrepresentation, negligent misrepresentation, breach of contract, promissory estoppel, negligence, intentional infliction of emotional distress, conversion, violations of the Unfair Competition Law and conspiracy.  The servicer demurred (moved to dismiss) — the borrower’s claims.  The trial court, predictably, sustained each of the CitiMortgage’s demurrers.

On appeal, the Third District Court of Appeal reversed the trial court’s dismissal of the borrower’s purported negligence claim.

In addressing the borrower’s negligence claim, the Third District first acknowledged the general rule that lenders do not owe borrowers a duty of care unless their involvement in a transaction goes beyond their “conventional role as a mere lender of money.”  However, the Court also pointed out that even when the lender is acting as a conventional lender, the no-duty rule is only a general rule.

The Court of Appeal then noted the split in decisions concerning “whether accepting documents for a loan modification is within the scope of a lender’s conventional role as a mere lender of money, or whether, and under what circumstances, it can give rise to a duty of care with respect to the processing of the loan modification application.”

A majority of federal district courts have found that a loan servicer does not owe a duty of care to a borrower when it reviews a loan modification application.  And, in a recent unpublished opinion, the Ninth Circuit also concluded that a lender does not have a duty to a loan modification applicant when the applicant’s “negligence claims are based on allegations of delays in the processing of their loan modifications.”  Anderson v. Deutsche Bank Nat’l, 649 Fed. App’x 550, 552 (9th Cir. 2016).

California Appeal courts have also reached different results where they addressed a servicer’s duty of care in reviewing loan modification applications.  Compare Lueras v. BAC Home Loans Servicing, LP, 221 Cal.App.4th 49 (Cal. App. 4th Dist., 2013) (residential loan modification is a traditional lending activity, which does not give rise to a duty of care) with Alvarez v. BAC Home Loans Servicing, LP, 228 Cal.App.4th 941 (Cal. App. 1st Dist., 2014) (servicer has no general duty to offer a loan modification, but a duty may arise when the servicer agrees to consider the borrower’s loan modification application) and Daniels v. Select Portfolio Servicing, Inc., 246 Cal.App.4th 1150 (Cal. App. 6th Dist., 2016) (following Alvarez and applying Biakanja factors to conclude that lender owed borrowers a duty of care in the loan modification process).

In sustaining CitiMortgage’s demurrers to the borrower’s negligence claim, the trial court relied on Lueras in holding that “lenders do not have a common law duty of care to offer, consider, or approve a loan modification, to offer foreclosure alternatives, or to handle loans so as to prevent foreclosure.”

In Lueras, the Fourth District Court of Appeal reasoned that “a loan modification is the renegotiation of loan terms, which falls squarely within the scope of a lending institution’s conventional role as a lender of money.”  The Lueras court then found that the Biakanja factors weighed against finding a duty of care, and it explained:  “If the modification was necessary due to the borrower’s inability to repay the Loan, the borrower’s harm, suffered from denial of a loan modification, would not be closely connected to the lender’s conduct.  If the lender did not place the borrower in a position creating a need for a loan modification, then no moral blame would be attached to the lender’s conduct.”

The Court of Appeal disagreed with the trial court, and found Alvarez to be the better reasoned ruling.

The Court of Appeal looked to Meixner v. Wells Fargo Bank, N.A., 101 F.Supp.3d 938 (E.D. Cal. 2015) where the federal district court reasoned:  “Alvarez identified an important distinction not addressed by the Lueras reasoning — that the relationship differs between the lender and borrower at the time the borrower first obtained a loan versus the time the loan is modified. The parties are no longer in an arm’s length transaction and thus should not be treated as such. While a loan modification is traditional lending, the parties are now in an established relationship. This relationship vastly differs from the one which exists when a borrower is seeking a loan from a lender because the borrower may seek a different lender if he does not like the terms of the loan.”

The Third District then applied the Biakanja factors to the borrower’s negligence claim.

First “the extent to which the transaction was intended to affect the plaintiff” — the Court of Appeal found that the loan modification was intended to affect the borrower because CitiMortgage’s decision on the borrower’s application for a modification plan would likely determine whether or not the borrower could keep her house.  The Court concluded the first factor weighed in favor of finding a duty of care.

The second factor concerned “the foreseeability of harm to the plaintiff” .  The Third District held that the potential harm to the borrower was readily foreseeable because the alleged mishandling of the documents deprived the plaintiff of the possibility of obtaining the requested relief, even though there was no guarantee that the modification would be granted had the application been properly processed.  The Court of Appeal also pointed out that CitiMortgage increased the likelihood that the borrower would incur additional expenses of default during the lengthy loan modification process, thereby increasing the foreseeable potential harm. The Court concluded the second factor weighed in favor of finding a duty of care.

As to the third factor – “the degree of certainty that the plaintiff suffered injury” — the Court of Appeal found that the borrower’s alleged damage to credit, increased interest and arrears, and foregone opportunities to pursue unspecified other remedies constituted a sufficient injury and weighed in favor of finding a duty of care.

As to the fourth factor – “the closeness of the connection between the defendant’s conduct and the injury suffered” — the Third District noted that the borrower’s default was imminent which could indicate that she would have suffered damage to her credit and increased interest and arrears regardless of the servicer’s conduct.  However, the Court of Appeal also recognized that the borrower was current on the loan until she learned that she could not be considered for a loan modification unless she defaulted.  The Court of Appeal then concluded that the fourth Biakanja factor weighed in favor of finding a duty of care at the pleading stage.

As to the fifth factor – “the moral blame attached to the defendant’s conduct” — the Third District reasoned that a borrower’s lack of bargaining power, coupled with CitiMortgage’s incentive to unnecessarily prolong the loan modification process, “provide a moral imperative that those with the controlling hand be required to exercise reasonable care in their dealings with borrowers seeking a loan modification.”  The Court of Appeal also noted that the “the moral blame attached to the defendant’s conduct” is heightened when the defendant first induces a borrower to take a vulnerable position by defaulting and then subjects the borrower’s loan application to a review process that does not meet the standard of ordinary care.”  The Court of Appeal found that the fifth Biakanja factor weighed in favor of a finding that the servicer owed a duty of care to the borrower.

As to the sixth and last factor – “the policy of preventing future harm” — the Court of Appeal found imposing a duty of care on the servicer would advance the policy of preventing future harm.  The Third District noted that California’s Homeowner’s Bill of Rights demonstrates a rising trend to require lenders to deal reasonably with borrowers in default to try to effectuate a workable loan modification.

Notably, the Court of Appeal’s application of the Biakanja factors signifies a reversal from its recent decision in Conroy v. Wells Fargo Bank, N.A., 13 Cal.App.5th 1012.  There, the court held that where there is privity of contract, a duty of care does not lie in the mortgage loan context.  The Third District later vacated and de-published Conroy.

Notwithstanding its finding that CitiMortgage owed the borrower a duty of care, the Court of Appeal suggested that CitiMortgage might have an affirmative defense to her negligence claim.  In particular, the Third District “assumed without deciding” that California Civil Code § 2923.6(g) offers an affirmative defense to a negligence claim in loan modification cases where the borrower submits multiple loan modification applications.

Section 2923.6(g) provides:  “[T]he mortgage servicer shall not be obligated to evaluate applications from borrowers who have already been evaluated or afforded a fair opportunity to be evaluated for a first lien loan modification,” unless there has been a material change in the borrower s financial circumstances since the date of the borrower’s previous application and that change is documented by the borrower and submitted to the mortgage servicer.”

Nevertheless, the Court of Appeal found that the servicer’s potential defense based upon the borrower’s multiple loan modification applications was not appropriate on demurrer as it required an analysis of facts outside of her complaint.

The Third District did affirm the trial court’s dismissal of the borrower’s purported conversion claim.  There, the borrower alleged that a 2006 assignment of the deed of trust was invalid due to defects in the securitization process.  As a result, the borrower alleged that the later assignment of the deed of trust to the servicer was invalid.

The Court of Appeal found the borrower had not alleged that the deed of trust was securitized or assigned to a trust in 2006.  As a result, the Court of Appeal affirmed the trial court’s dismissal of the borrower’s purported claim for conversion.

In an unpublished portion of its opinion, the Third District: (1) reversed the trial court’s dismissal of the borrower’s unfair competition claim; (2) affirmed the trial court’s dismissal of the borrower’s purported claims for intentional misrepresentation and promissory estoppel, but concluded she should have been given leave to amend; and, (3) affirmed the trial court’s dismissal, without leave to amend, of the borrower’s purported claims for negligent misrepresentation, breach of contract, and intentional infliction of emotional distress.

As you may recall, California’s Unfair Competition Law (UCL) prohibits, and provides civil remedies for, unfair competition, which it defines as any unlawful, unfair, or fraudulent business act or practice.  To plead standing, a UCL plaintiff must (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact (i.e., economic injury) and (2) show that economic injury was the result of the unfair business practice.

With respect to the borrower’s purported claim for violation of the UCL, the Court of Appeal found that the borrower had standing based upon the postage fees which the borrower allegedly spent repeatedly re-submitting documents to the servicer.  The Court of Appeal held that these fees constituted “sufficient economic harm as a result of the alleged mishandling of her loan modification application materials.”

The Third District also found that the borrower adequately alleged both unfair and fraudulent practices by alleging that CitiMortgage “intentionally delayed the application process by demanding that [the borrower] submit the same documents over and over again, all in an attempt to increase arrears, penalties, and fees, resulting in an incurable default.”

The Court of Appeal also reversed the trial court’s refusal to grant the borrower leave to amend her purported promissory estoppel claim based upon the servicer’s alleged 2012 oral promise to grant a trial plan and permanent modification.

In California, promissory estoppel requires: (1) a promise that is clear and unambiguous in its terms, (2) reliance by the party to whom the promise is made, (3) the reliance must be reasonable and foreseeable, and (4) the party asserting the estoppel must be injured by his or her reliance.

The Third District acknowledged that the borrower failed to allege either an unambiguous promise or reasonable reliance because a general promise to send some sort of trial loan modification agreement does not constitute a clear and unambiguous promise to provide any kind of mortgage relief.  And, the Court reasoned that no borrower could reasonably rely on an alleged promise to offer a loan modification on any terms, as the offered modification might not lower their monthly payments sufficiently to allow her to avoid default.

Nevertheless, the Third District held that the borrower should have been given leave to amend to state a viable cause of action, if she is able to do so.

Likewise, the Court of Appeal also reversed the trial court’s dismissal of the borrower’s intentional misrepresentation claim, based upon an alleged 2012 oral representation that the servicer would send the borrower a HAMP TPP.  The Court held that the trial court should have given the borrower leave to amend.

In particular, the Third District found that the borrower had adequately alleged that the servicer’s representative made this promise without any intention of performing it, with the intent to induce the borrower to submit another application, thereby prolonging the loan modification process and allowing CitiMortgage to charge additional interest, fees, and penalties.

However, the Court of Appeal acknowledged that the borrower had failed to adequately allege damages based upon her reliance on the supposed misrepresentation.  Instead, the borrower opaquely alleged that she might have pursued unspecified “alternate remedies” had she not relied on the false promise that she would receive a HAMP TPP.  The borrower also alleged that she suffered damage to her credit and increased arrears, fees, and penalties, while awaiting a loan modification.

The Third District observed that the borrower’s complaint suggested that she had no alternative remedies, due to her poor finances.  And, the Court of Appeal noted that the borrower had not alleged how CitiMortgage’s representations could have caused her damages, as opposed to her default on the loan.  Nevertheless, the Court of Appeal determined that the borrower should have been given leave to explain her damages and overcome her pleadings deficiencies.

The Court of Appeal did affirm the trial court’s dismissal of the borrower’s purported negligent misrepresentation claim.  The Court found that the borrower had merely alleged that the servicer negligently promised to modify her loan.  And, California does not recognize a cause of action for negligent false promise.

The Third District also found that the borrower failed to allege that CitiMortgage agreed to modify her loan.  The Court noted that the borrower’s alleged agreement to provide a TPP on terms to be specified in the future amounts to an unenforceable “agreement to agree.”

Finally, the Court of Appeal affirmed the trial court’s dismissal of the borrower’s purported claim for intentional infliction of emotional distress (IIED).

To state a claim for IIED, a plaintiff must allege:  (1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) the plaintiff s suffering severe or extreme emotional distress; and (3) actual and proximate causation of the emotional distress by the defendant’s outrageous conduct.

The Court of Appeal found that the alleged mishandling of the borrower’s loan modification applications did not constitute conduct so extreme, outrageous, or outside the bounds of civilized society as to support a cause of action for intentional infliction of emotional distress.

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