Risk Management Tips For Attorneys Serving As Local Counsel


Law360, New York (August 19, 2016, 11:32 AM ET) —

Patrick S. (Sean) Ginty

Seth L. Laver

Many attorneys are territorial animals. The thought of voluntarily exposing a client to potential competition may be frightening. Yet, given the licensing requirements attached to the practice of law, attorneys seeking to represent clients outside of their home state may require the use of local counsel. As such, they may be reluctant to risk the possibility of losing clients to competitors. Often, lead counsel maintains sole contact with the client and makes substantive decisions, merely relying upon local counsel only to serve in the requisite capacity to satisfy jurisdictional procedures. Therein lies the problem: absent appropriate precautionary measures, local counsel faces equal malpractice exposure for the substantive, strategic decisions of lead counsel even when the local attorney engages in what may appear to constitute inconsequential work on behalf of the client. What may be initially viewed as a stress-free opportunity includes inherent risks for local counsel.

Undefined Roles

In the typical scenario, lead counsel or the client may retain a local attorney for the limited purpose of representing a client in a venue in which the lead is not admitted to practice. Lead counsel may rely upon the local counsel to handle filings, including perhaps pro hac vice motions, to liaise with the court, to advise the lead counsel regarding any local rules and to serve as a registered mailing address for the client’s matter. On the other hand, lead counsel often may be engaged in rendering primary professional services by exclusively engaging with the client and making all substantive decisions.

The model outlined above is routinely utilized. Nevertheless, it is unquestionably flawed due to the high probability of miscommunication among the attorneys and/or the client. This relationship also may create unintended client expectations. The American Bar Association Model Rules of Professional Conduct, which are applicable in many states, do not distinguish between “local” and “lead” counsel. Rather, any attorney representing a client must comply with the ethical rules. This responsibility is, therefore, considered a nondelegable obligation. However, a client may agree to engage an attorney for a limited purpose as long as the limitation is expressly documented in an executed engagement letter. In the absence of such documentation, local counsel is vulnerable to the same risks facing lead counsel and, worse still, the local counsel may have had no involvement in the substantive decisions that could lead to a malpractice claim.

Defined Risks

Today, attorneys find themselves in high demand[1] but are subject to an increased risk of malpractice. Ever-evolving technology has affected how, when and where attorneys practice, thus contributing to heightened client expectations regarding the delivery of legal services. Moreover, client expectations may have shifted as a result of the “dramatic economic upheaval” of 2008.[2] Thus, in a relatively new approach to legal marketing, it is the client who strongly influences how attorneys deliver legal services.[3] When an attorney fails to meet these expectations, studies suggest that clients have become more willing than ever to sue their former attorneys for malpractice.[4]

The cause of the recent uptick in malpractice claims falls outside the scope of this article. Yet the ABA has identified the most common cause of legal malpractice lawsuits. According to its data, the most common legal malpractice claim by type of alleged error is the “failure to know/apply law.”[5] Approximately 11 percent of all reported legal malpractice claims are due to an attorney’s alleged failure to properly apply substantive law. The ABA provides a compelling hypothesis as to why substantive errors lead to the most legal malpractice claims:

Over the past few decades, legislation has become more complex and the law has become far more complicated. This means more lawyers now tend to specialize in a given area of law, with fewer general practitioners in the mix.[6]

Lawyers performing professional services outside of their typical practice area — dabblers — are significantly more likely to commit “failure to know” errors. Based upon CNA claim data from 2006 to 2015, solo law firms that have four or more different areas of practice report significantly more claims than solo firms with fewer than four different areas of practice. Dabblers may include the bankruptcy attorney who agrees to represent a neighbor in a landlord/tenant dispute or the commercial litigator who prepares his friend’s estate plan. Importantly, however, dabblers also include the attorney who agrees to serve as a local counsel in a matter outside of her practice area. The foregoing statistics underscore the risks and exposures facing local counsel who may be placed at the mercy of lead counsel’s substantive decisions.

Rules of the Game

Local counsel cannot operate under the assumption that lead counsel is exclusively responsible to the client in the event of a poor, unexpected or avoidable result. Even if lead counsel made all substantive decisions and kept the local on the outskirts, the ABA Model Rules consider a lawyer’s role as “all-inclusive.”[7]

Local counsel must consider his or her ethical obligations arising under several ABA Model Rules. In particular, Rule 1.1 requires that a lawyer “provide competent representation to a client” and to inform the client of any areas that transcend the lawyer’s expertise. Rule 1.3 requires that a lawyer act with “reasonable diligence and promptness in representing a client.” Rule 1.4 requires that the lawyer “keep a client reasonably informed about the status of the matter.”

Attorneys may take for granted these fundamental obligations when serving as local counsel based upon a misguided belief that the responsibility of competence, diligence and communication fall exclusively on the shoulders of lead counsel. According to the New York Committee on Professional Ethics, “merely being designated as ‘local counsel’ does not necessarily limit the attorney’s role, nor does it narrow her ethical obligations to the client.”[8]

Courts also take these responsibilities seriously. In Curb Records v. Adams & Reese LLP, the Fifth Circuit Court of Appeals considered an attorney’s duty to bypass “lead counsel and report directly to the client.”[9] In Curb, local counsel complied with specific instructions from lead counsel not to engage in any dialog with the client and accepted lead counsel’s representation that the client approved lead counsel’s recommendations. Notably, local counsel did not obtain an engagement letter with the client. Ultimately, lead counsel’s “malfeasance” resulted in a default judgment against the client and the malpractice suit followed. On appeal, the Fifth Circuit reversed the district court and held that there is an “inherent and non-delegable duty of care that requires local counsel to inform its client” of pertinent information regardless of lead counsel’s instructions. With reference to the ABA Model Rules 1.1, 1.3 and 1.4, the court concluded that the local counsel, even with “secondary responsibility for a case,” must maintain his ethical responsibilities to the client and his failure to do so constituted malpractice.

Consider whether the outcome would have been different for the defendant in Curb had local counsel obtained an executed engagement letter with the client. Although counsel cannot contract around the obligation to communicate pertinent information to the client, courts are cognizant of the reality that “local counsel does not automatically incur a duty of care with regard to the entire litigation … when the client vests lead counsel with primary responsibility for the litigation.”[10] If the law were otherwise, the costs involved in retaining local counsel would increase substantially and would result in a duplication of effort that would “foster problematic public policy.”[11] The accepted method of achieving that balance between ethical obligations and maintaining client expectations is through an effective, limited scope engagement letter.

Limitation-of-Scope Provisions

An attorney seeking to define her limited role as local counsel should do so through an agreement to limit the scope of the representation under ABA Model Rule 1.2(c), which all jurisdictions have adopted in some form. A limited-scope agreement “does not absolve a lawyer from complying with her ethical duties,” but it “narrows the universe within which those ethical obligations apply, by limiting the lawyer’s role in the matter and specifying the tasks she is to perform.”[12] A written agreement that clearly defines the role of local counsel can benefit all parties by managing expectations, avoiding misunderstandings, and ultimately minimizing disputes regarding the allocation of responsibility between lead and local counsel and by managing the client’s costs.

Pursuant to Rule 1.2(c), a “lawyer may limit the scope of his representation if the limitation is reasonable under the circumstances and the client gives informed consent.” Therefore, if local counsel reaches an understanding with lead counsel that the local counsel’s role, for example, will be limited to attending hearings and reviewing pleadings researched and prepared by lead counsel, the following limiting language may be appropriate:

Our responsibilities will include attending court hearings and oversight of all pleadings to ensure that each is filed in the proper form and providing advice concerning [forum venue] law and practice when appropriate. While we will monitor the communications that we receive, it will not be our role to identify issues of importance, develop case strategy, or respond to any discovery unless there is a specific request from you [lead law firm] to us in writing to do so.

Of course, local counsel must adhere to the limited-scope provision in order to be protected by it. If local counsel provides legal services that go beyond the agreed-upon written limitations, such limitations would no longer be in effect and the local counsel may assume joint liability for any errors made by the lead counsel.

Other Engagement Letter Considerations

As an initial matter, lead counsel must decide, in conjunction with the client, who will retain local counsel — i.e. the client or the lead counsel. In making this decision, consistent with the duty of loyalty owed to the client, the best interests of the client should be the determinative factor. Lead counsel must resist the temptation to shield the existence or identity of the local counsel from the client due to concerns that the client may engage the local counsel for future assignments.

Regardless of who engages local counsel, it may be appropriate for the substance of the engagement letter with local counsel to contain the following elements.

Fees and Expenses

If the legal fees are being shared between lead and local counsel, the engagement agreement must comply with the relevant jurisdiction’s corollary to Model Rule 1.5, which states that “a division of a fee between lawyers who are not in the same firm may be made only” if the division “is in proportion to the services performed by each lawyer,” the client agrees in writing to this allocation and the total fee is “reasonable.”

If lead counsel is not sharing fees with local counsel, the client need not execute the engagement letter. Yet, lead counsel must obtain the client’s informed consent to hire local counsel — preferably in writing.

In addition to deciding whether they will charge the client on a contingent fee, flat fee or hourly basis, lead and local counsel also will seek to agree on:

  • who will bill the client and how often;
  • who will discuss any expenses not covered in the engagement agreement with the client;
  • who will advance payments for expenses when the client will not;
  • who will maintain any client funds;
  • who will pay local counsel’s fees and expenses; and
  • how they will address nonpayment or partial payment issues with the client.

The engagement agreement between lead and local counsel should convey not only the fee basis but how often the client will be billed, what expenses the client is responsible for paying, and what steps the law firms will take if the client fails to pay legal bills on a timely basis.

Indemnification Agreement

In attempting to avoid liability in the event that the other attorney commits an error during the representation, lead and local counsel may consider a joint indemnification agreement. Local counsel has little to no control over lead counsel’s conduct and should not risk liability for an error for which the lead is solely responsible. The lead law firm may encounter difficulty in avoiding liability for the mistakes of local counsel if the lead law firm neglected its supervisory responsibilities. See Whalen v. DeGraff Foy Conway Holt-Harris & Mealey, 53 A.D. 3d 912, 914 (N.Y. Sup. Ct. 2008) (lead law firm “assumed responsibility” for local counsel’s failure to timely file a collection action when it failed to verify whether a complaint had been filed within two-year time period). Courts, however, have been willing to adjudicate indemnity claims by lead counsel against local counsel where the error is solely the fault of local counsel. See, e.g., Musser v. Provencher, 48 P.3d 408 (Cal. 2002) (lead law firm/family lawyer allowed to pursue equitable indemnification claim against the local counsel/bankruptcy attorney where that attorney provided erroneous legal advice to the client about the effect that the client’s spouse’s bankruptcy proceedings would have on the client’s support hearing).

File Retention and Destruction

While the lead counsel will wish to maintain the primary client file, it should have an agreement with local counsel about how and when documents that local counsel receives will be forwarded to lead counsel, and what original documents, if any, local counsel will maintain. At the conclusion of the matter, lead counsel should instruct local counsel to forward any file substantive materials not previously received by the lead law firm. The engagement agreement should instruct the client as to how the files will be stored, how long lead counsel will maintain the client file, and whether and how much the law firm will charge for copying costs.

Client Review of Agreement

Before clients countersign an engagement letter, they should confirm that they have read the entire letter, understand its terms, and agree to abide by these terms. Clients also should be informed that they have the right to have another lawyer review the engagement letter outside the presence of the retained law firm, and prior to countersigning the letter. This section of the engagement letter also should clearly state that the attorney-client relationship does not commence unless and until the countersigned letter is received by the law firm and any corresponding retainer is paid.

Countersignature of Client

Requiring a client countersignature is a good risk management practice for all engagement agreements and imperative if lead and local counsel are splitting the legal fees.

There are, of course, numerous other provisions that should appear in an engagement letter irrespective of whether the engagement is for local counsel. Sample engagement letters with multiple provisions and draft language can be reviewed in the CNA Lawyers’ Toolkit 3.0, which is available here.


The practice of law can be incredibly rewarding, yet it is fraught with risk. Those risks amplify when an attorney steps outside her primary practice area or fails to effectively communicate with the client. Serving as a local counsel can be beneficial to all — client, lead and local counsel — as long as expectations and communication are clear. An appropriately tailored engagement letter with local counsel may represent a suitable method of managing these risks.

—By Patrick S. (Sean) Ginty, CNA Global Specialty, and Seth L. Laver, Goldberg Segalla LLP

Patrick (Sean) Ginty is a risk control consulting director for CNA’s Lawyers Professional Liability Insurance Program. He is responsible for the design and content of lawyers’ professional liability risk-control services, products and publications. He also authors articles focusing on law firm risk control and professional responsibility issues. He is admitted to practice in Illinois and the U.S. District Court for the Northern District of Illinois.

Seth Laver is a partner in the Philadelphia office of Goldberg Segalla. He defends attorneys, accountants and other professionals in malpractice matters and provides presuit risk consultation. He is the editor of Professional Liability Matters, Goldberg Segalla’s blog focusing on the professional liability community, and the vice chairman of DRI’s professional liability committee. He is admitted to practice in Pennsylvania, New Jersey and New York.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] See, Commerce Department’s Report on Professional Services Industry. http://selectusa.commerce.gov/industry-snapshots/professional-services-industry-united-states.html.

[2] ABA Journal. Dubious Honor: Real Estate Leads the Practice Field for Malpractice Claims, 12/1/2012.

[3] 2015 Report on the State of the Legal Market, Georgetown Law Center for the Study of the Legal Profession. http://www.law.georgetown.edu/academics/centers-institutes/legal-profession/upload/FINAL-Report-1-7-15.pdf

[4] Insurance Journal, Insurers See Rise in Severity of Lawyers’ Malpractice Claims, 7/2/2014. http://www.insurancejournal.com/news/national/2014/07/02/333572.htm

[5] ABA Law Practice, Avoiding Malpractice — Are You at Risk?, 7/2010, Vol 36, No. 4, http://www.americanbar.org/publications/law_practice_home/law_practice_archive/lpm_magazine_articles_v36_is4_pg29.html

[6] Ibid.

[7] LegalNews.com, Not-so-limited role and exposure of local counsel, 5/20/2010, http://www.legalnews.com/ingham/683403

[8] The Association of the Bar of the City of New York Committee on Professional Ethics, Formal Opinion 2015-4: Duties of Local Counsel; http://www.nycbar.org/ethics/ethics-opinions-local/2015opinions/2188-formal-opinion-2015-4-duties-of-local-counsel-.

[9] Curb Records v. Adams & Reese LLP, 1999 U.S. App. LEXIS 39003 (5th Cir. La. Nov. 29, 1999)

[10] Macawber Eng’g v. Robson & Miller, 47 F.3d 253 (8th Cir. Minn. 1995)

[11] Id.

[12] The Association of the Bar of the City of New York Committee on Professional Ethics, Formal Opinion 2015-4: Duties of Local Counsel; http://www.nycbar.org/ethics/ethics-opinions-local/2015opinions/2188-formal-opinion-2015-4-duties-of-local-counsel-.

Problems with Lehman and Aurora

Lehman had nothing to do with the loan even at the beginning when the loan was funded, it acted as a conduit for investor funds that were being misappropriated, the loan was “sold” or “transferred” to a REMIC Trust, and the assets of Lehman were put into a bankruptcy estate as a matter of law.


I keep receiving the same question from multiple sources about the loans “originated” by Lehman, MERS involvement, and Aurora. Here is my short answer:

Yes it means that technically the mortgage and note went in two different directions. BUT in nearly all courts of law the Judge overlooks this problem despite clear law to the contrary in Florida Statutes adopting the UCC.

The stamped endorsement at closing indicates that the loan was pre-sold to Lehman in an Assignment and Assumption Agreement (AAA)— which is basically a contract that violates public policy. It violates public policy because it withholds the name of the lender — a basic disclosure contained in the Truth in Lending Act in order to make certain that the borrower knows with whom he is expected to do business.

Choice of lender is one of the fundamental requirements of TILA. For the past 20 years virtually everyone in the “lending chain” violated this basic principal of public policy and law. That includes originators, MERS, mortgage brokers, closing agents (to the extent they were actually aware of the switch), Trusts, Trustees, Master Servicers (were in most cases the underwriter of the nonexistent “Trust”) et al.
The AAA also requires withholding the name of the conduit (Lehman). This means it was a table funded loan on steroids. That is ruled as a matter of law to be “predatory per se” by Reg Z.  It allows Lehman, as a conduit, to immediately receive “ownership” of the note and mortgage (or its designated nominee/agent MERS).

Lehman was using funds from investors to fund the loan — a direct violation of (a) what they told investors, who thought their money was going into a trust for management and (b) what they told the court, was that they were the lender. In other words the funding of the loan is the point in time when Lehman converted (stole) the funds of the investors.

Knowing Lehman practices at the time, it is virtually certain that the loan was immediately subject to CLAIMS of securitization. The hidden problem is that the claims from the REMIC Trust were not true. The trust having never been funded, never purchased the loan.


The second hidden problem is that the Lehman bankruptcy would have put the loan into the bankruptcy estate. So regardless of whether the loan was already “sold” into the secondary market for securitization or “transferred” to a REMIC trust or it was in fact owned by Lehman after the bankruptcy, there can be no valid document or instrument executed by Lehman after that time (either the date of “closing” or the date of bankruptcy, 2008).


The reason is simple — Lehman had nothing to do with the loan even at the beginning when the loan was funded, it acted as a conduit for investor funds that were being misappropriated, the loan was “sold” or “transferred” to a REMIC Trust, and the assets of Lehman were put into a bankruptcy estate as a matter of law.


The problems are further compounded by the fact that the “servicer” (Aurora) now claims alternatively that it is either the owner or servicer of the loan or both. Aurora was basically a controlled entity of Lehman.

It is impossible to fund a trust that claims the loan because that “reporting” process was controlled by Lehman and then Aurora.


So they could say whatever they wanted to MERS and to the world. At one time there probably was a trust named as owner of the loan but that data has long since been erased unless it can be recovered from the MERS archives.


Now we have an emerging further complicating issue. Fannie claims it owns the loan, also a claim that is untrue like all the other claims. Fannie is not a lender. Fannie acts a guarantor or Master trustee of REMIC Trusts. It generally uses the mortgage bonds issued by the REMIC trust to “purchase” the loans. But those bonds were worthless because the Trust never received the proceeds of sale of the mortgage bonds to investors. Thus it had no ability to purchase loan because it had no money, business or other assets.

But in 2008-2009 the government funded the cash purchase of the loans by Fannie and Freddie while the Federal Reserve outright paid cash for the mortgage bonds, which they purchased from the banks.

The problem with that scenario is that the banks did not own the loans and did not own the bonds. Yet the banks were the “sellers.” So my conclusion is that the emergence of Fannie is just one more layer of confusion being added to an already convoluted scheme and the Judge will be looking for a way to “simplify” it thus raising the danger that the Judge will ignore the parts of the chain that are clearly broken.

Bottom Line: it was the investors funds that were used to fund loans — but only part of the investors funds went to loans. The rest went into the pocket of the underwriter (investment bank) as was recorded either as fees or “trading profits” from a trading desk that was performing nonexistent sales to nonexistent trusts of nonexistent loan contracts.

The essential legal problem is this: the investors involuntarily made loans without representation at closing. Hence no loan contract was ever formed to protect them. The parties in between were all acting as though the loan contract existed and reflected the intent of both the borrower and the “lender” investors.

The solution is for investors to fire the intermediaries and create their own and then approach the borrowers who in most cases would be happy to execute a real mortgage and note. This would fix the amount of damages to be recovered from the investment bankers. And it would stop the hemorrhaging of value from what should be (but isn’t) a secured asset. And of course it would end the foreclosure nightmare where those intermediaries are stealing both the debt and the property of others with whom thye have no contract.


https://www.vcita.com/v/lendinglies to schedule CONSULT, MAKE A DONATION, leave message or make payments.


Black Knight: Delinquencies Up, Foreclosure Starts Down In July

Black Knight: Delinquencies Up, Foreclosure Starts Down In July

he mortgage delinquency rate in July was about 4.51%, an increase of 4.78% compared with June but a decrease of 3.38% compared with July 2015, according to Black Knight Financial Services’ “First Look” report.

About 2.286 million mortgages were 30 days or more past due, but not in foreclosure, in July – an increase of about 108,000 compared with June but a decrease of about 70,000 compared with July 2015.

About 695,000 mortgages were 90 days or more past due, but not in foreclosure – an increase of about 3,000 compared with June but a decrease of about 147,000 compared with a year earlier.

Based on its historical data, Black Knight is forecasting that the delinquency rate is likely to decrease in August.

There were about 61,300 foreclosure starts in July – a decrease of 11.54% compared with June and a decrease of 14.27% compared with one year earlier.

It was the second-lowest monthly total for foreclosure starts in 10 years, Black Knight says.

The presale foreclosure inventory rate in July was 1.09%, a decrease of 1.68% compared with June and a decrease of 28.36% compared with July 2015.

There were about 550,000 homes in the presale foreclosure inventory – a decrease of about 8,000 compared with June and a decrease of about 214,000 compared with July 2015.

It was the lowest presale foreclosure inventory rate since July 2007.

The monthly prepayment rate was about 1.26%. That’s down 11.98% compared with June and down 1.00% compared with July 2015.

Black Knight notes that prepayment activity fell in July despite overall growth in the number of refinance candidates and 30-year interest rates remaining at or below 3.45% for much of the month.

Affected Indiana Residents Could be Awarded $2 Million in Foreclosure Abuse Settlement


Indiana residents should be on the lookout for mailed notices coming this month that provide instructions on how to claim reimbursements from the state of Indiana’s $470 million federal-state settlement with mortgage lender and servicer, HSBC.

Indiana Attorney General Greg Zoeller says Hoosiers can claim $2 million in reimbursements from the settlement for foreclosure abuses starting August 24.

The settlement was announced in February and it addresses foreclosure abuses by HSBC during the financial crisis.

An estimated 2,810 Indiana borrowers lost their homes from 2008-2012 and encountered servicing abuses by HSBC. Those 2,810 people are eligible for reimbursements. Individual payments will start at $780 and total reimbursement statewide could exceed $2 million.

Attorney General Zoeller says, “Many Hoosiers still feel the impact of the financial crisis, which was exacerbated by abuses and unethical practices in the mortgage lending and servicing industry.”

A postcard notice will be sent informing people of their eligibility on August 24.

All claim forms are due by November 1, 2016. Payments would be mailed out in February and March of 2017.

For more information about the D.O.J HSBC settlement, click here.


FDCPA and FCCPA: Temperatures rising

FDCPA and FCCPA (or similar state legislation) claims are getting traction across the country. Bank of America violated the federal Fair Debt Collection Practices Act (“FDCPA”) and the related Florida Consumer Collection Practices Act (“FCCPA”). (Doc. 26). The Goodin case is a fair representation of the experience of hundreds of thousands of homeowners who have tried to reconcile the numbers given to them by Bank of America and others.

In a carefully worded opinion from Federal District Court Judge Corrigan in Jacksonville, the Court laid out the right to damages under the FDCPA and FCCPA. The Court found that BOA acted with gross negligence because they continued their behavior long after being put on notice of a mistake on their part and awarded the 2 homeowners:

  • Statutory damages of $2,000
  • Actual damages for emotional distress of $100,000 ($50,000 per person)
  • Punitive damages of $100,000
  • Attorneys fees and costs


See http://www.leagle.com/decision/In%20FDCO%2020150623E16/GOODIN%20v.%20BANK%20OF%20AMERICA,%20N.A.

The story is the same as I have heard from thousands of other homeowners. The “servicer” or “bank” misapplies payments, negligently posts payments to the wrong place and refuses to make any correction despite multiple attempts by the homeowners to get their account straightened out. Then the bank refuses to take any more payments because the homeowners are “late, ” “delinquent”, or in “default”, following which they send a default notice, intent to accelerate and then file suit in foreclosure.

The subtext here is that there is no “default” if the “borrower” tenders payment timely with good funds. The fact that the servicer/bank does not accept them or post them to the right ledger does not create a default on the part of the borrower, who has obviously done nothing wrong. There is no default and there is no delinquency. The wrongful act was clearly committed by the servicer/bank. Hence there is no default by the borrower in any sense by any standard. It might be said that if there is a default, it is a default by Bank of America or whoever the servicer/bank is in another case.

Using the logic and law of yesteryear, we frequently make the mistake of assuming that if there is no posting of a payment, no cashing of a check or no acceptance of the tender of payment, that the borrower is in default but it is refutable or excusable — putting the burden on the borrower to show that he/she/they tendered payment. In fact, it is none of those things. When you parse out the “default” none of the elements are present as to the borrower.

This case stands out as a good discussion of damages for emotional distress — including cases, like this one, where there is no evidence from medical experts nor medical bills resulting from the anguish of trying to sleep for years knowing that the bank or servicer is out to get your house. The feeling of being powerless is a huge factor. If an institution like BOA fails to act fairly and refuses to correct its own “errors,” it is not hard to see how the distress is real.

I of course believe that BOA had no procedures in place to deal with calls, visits, letters and emails from the homeowner because they want the foreclosure in all events — or at least as many as possible. The reason is simple: the foreclosure judgment is the first legally valid instrument in a long chain of misdeeds. It creates the presumption that all the events, documents, letters and claims were valid before the judgment was entered and makes all those misdeeds enforceable.

The Judge also details the requirements for punitive damages — i.e., aggravating circumstances involving gross negligence and intentional acts. The Judge doesn’t quite say that the acts of BOA were intentional. But he describes BOA’s actions as so grossly negligent that it must approach an intentional, malicious act for the sole benefit of the actor.



It has always been a basic rule of negotiable instruments law that once a promissory note is given for an underlying obligation (like the mortgage contract), the underlying obligation is merged into the note and is suspended while the note is still outstanding. Discharge on the note would (due to the rule that the two are merged) result in discharge discharge of the underlying obligation. Thus paying the note would also pay the obligation. Because of the merger rule, the underlying obligation is not available as a separate course of action until the note is dishonored.


The problem here is that most lawyers and most judges are not very familiar with the UCC even though it constitutes state law in whatever state they are in. They see the UCC as a problem when in fact it is a solution. it answers the hairy details without requiring any interpretation. It just needs to be applied. But just then the banks make their “free house” argument and the judge “interprets a statute that is only vaguely understood.

The banks know that judges are not accustomed to using the UCC and they come in with a presumed default simply because they show the judge that on their own books no payment was posted. And of course they have no record of tender and refusal by the bank. The court then usually erroneously shifts the burden of proof, as to whether tender of the payment was made, onto the homeowner who of course does not  have millions of dollars of computer equipment, IT platforms and access to the computer generated “accounts” on multiple platforms.

This merger rule, with its suspension of the underlying obligation until this honor of the note cut is codified in §3-310 of the UCC:

(b) unless otherwise agreed and except as provided in subsection (a), if a note or an uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instruments were taken, and the following rules apply:

(2) in the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in the discharge of the obligation to the extent of the payment.

thus until the note is dishonored there can be no default on the underlying obligation (the mortgage contract). All foreclosure statutes, whether permitting self-help or requiring the involvement of court, forbid foreclosure unless the underlying debt is in”Default.” That means that the maker of the promissory note must have failed to make the payments required by the note itself, and thus the node has been dishonored. Under UCC §3-502(a)(3) a hello promissory note is dishonored when the maker does not pay it when the footnote first becomes payable.

Bank of America HAMP Denial? Rackeetering Claims Revived

Racketeering Claims Against Bank of America Revived
(CN) — Homeowners can sue Bank of America for claims it feigned compliance with a mortgage assistance plan that was a condition of the bank’s $45 billion bailout in 2008, the 10th Circuit ruled Monday.

     Bank of America hired Urban Settlement Services dba Urban Lending Solutions to administer its Home Affordable Modification Program, or HAMP.

The bank was required to participate in HAMP as a condition of receiving a $45 billion bailout from the federal government to shore up the bank’s bad loans during the 2008 financial crisis. The government also guaranteed $118 billion in potential losses at the bank.

HAMP required Bank of America to collect financial information from at-risk borrowers, and evaluate their eligibility for a loan modification that would allow them to pay a lower interest on their mortgage.

The program allowed eligible borrowers to enter a trial period plan to demonstrate their ability to make lower monthly payments, and permanently modified loans if the borrowers made regular payments.

But a class of homeowners led by Richard George say Bank of America and Urban conspired to obstruct and delay their HAMP loan modification applications.

The defendants lied to borrowers, according to a 2013 lawsuit filed in Colorado, denying they had received HAMP application documents that they had in fact received, as proven by FedEx tracking numbers, in order to mislead homeowners about the status of their applications.

The bank was allegedly motivated to feign compliance with the HAMP program in order to keep interest rates high on homeowners struggling to pay their mortgages.

A federal judge dismissed the class’s RICO and promissory estoppel claims, but the 10th Circuit revived them Monday.

“According to the plaintiffs, the enterprise’s dilatory tactics and wrongful denial of HAMP loan modifications defrauded borrowers of money. The plaintiffs specifically allege BOA profited from the fraud by improperly charging fees associated with delinquent loans and by ‘push[ing] homeowners into in-house modifications’ that carried higher interest rates than those associated with HAMP loan modifications,” Judge Nancy Moritz said, writing for the three-judge panel.

The appeals court found homeowners’ allegations sufficiently specific to sustain their racketeering claim against the bank. The judgment notes that plaintiffs identify bank employees by name, specify the dates on which they spoke to said employees, and explain the actions they took based on the misinformation they were allegedly given.

The homeowners’ claim against Urban also passes muster, because the allegations, if true, support a finding that Urban was aware of the overall scheme to defraud borrowers, the 38-page ruling states.

In addition, Moritz found that Bank of America made a promise to homeowners on its website and in documents sent to homeowners explaining the HAMP process, supporting their promissory estoppel claim.

“The language in BOA’s [trial period plan, or TPP] documents clearly and unambiguously promises to provide permanent HAMP loan modifications to borrowers who comply with the terms of their TPPs. And this is true regardless of whether those TPP documents state that promise inversely – i.e., that if the borrowers fail to comply with TPP terms, BOA will not modify the loan,” the judge wrote.

Rolling Stone’s Matt Taibbi: Why is the Obama Administration trying to keep 11k Documents sealed?

April 18, 2016


After 2008, everyone hated Fannie and Freddie, and for good reason. These quasi-private companies are essentially giant piles of money that were intended to advance a simple, utility-like mandate to keep credit flowing in the housing markets.

In the pre-crash years, however, the firms’ leaders acted less like the stewards of utilities and more like sleazy Wall Street hotshots. They made hyper-aggressive business decisions because their bonuses were tied to earnings growth. Some executives even engaged in Enronesque accounting manipulations in an effort to jack up their bonuses even further. These efforts led to record civil fines.

Contrary to popular belief, the one thing they weren’t guilty of was causing the 2008 crash. As the Financial Crisis Inquiry Commission later concluded, the GSEs were followers rather than leaders of the subprime craze. They invested far less recklessly than did the giant Wall Street firms primarily responsible for inflating the housing bubble.

In fact, it’s a little-known subplot of the financial crisis that bailout-era Fannie and Freddie was turned into a kind of garbage facility for other Wall Street institutions, buying up toxic mortgages that private banks were suddenly desperate to unload.

As early as March of 2008, then Treasury Secretary Hank Paulson was advocating using Fannie and Freddie to “buy more mortgage-backed securities from overburdened banks.”

And at the heat of the crisis, none other than former House Financial Services Committee chief and current Hillary Clinton booster Barney Frank praised the idea of using Fannie and Freddie to ease economic problems. “I’m not worried about Fannie and Freddie’s health,” he said. “I’m worried that they won’t do enough to help out the economy.”

Even after the state took over the companies in September of 2008, Fannie and Freddie continued to buy as much as $40 billion in bad assets per month from the private sector. Fannie and Freddie weren’t just bailed out, they were themselves a bailout, used to sponge up the sins of private firms.

The original takeover mechanism was a $110 billion bailout, followed by a move to place Fannie and Freddie in conservatorship. In exchange, the state received an 80 percent stake and the promise of a future dividend. All told, the government ended up pumping about $187 billion into the companies.

But now here’s the strange part. Within a few years after the crash, the housing markets improved significantly, to the point where Fannie and Freddie started to make money again. Lots of money. The GSEs became cash cows again, and in 2012 the government unilaterally changed the terms of the bailout.

Now, instead of taking a 10 percent dividend, the government decided that the new number it preferred was 100 percent. The GSE regulator, the Federal Housing Finance Agency (FHFA), explained the new arrangement.

“The 10 percent fixed-rate dividend was replaced with a variable structure, essentially directing all net income to the Treasury,” the FHFA wrote. “Replacing the current fixed dividend in the agreements with a variable dividend based on net worth helps ensure stability [and] fully captures financial benefits for taxpayers.”



Get every new post delivered to your Inbox.

Join 4,571 other followers

%d bloggers like this: