U.S. Government Gives More Tax Money to Ally Financial
[While Ally Refuses to Share Much of It With Homeowners]
by David Shepardson, Detroit News Washington Bureau, December 30, 2010
The U.S. Treasury Department upped its ownership stake in Detroit-based auto and mortgage lender Ally Financial Inc. to 73.8 percent as part of its $17.2 billion bailout.
The move should help Ally begin its exit from government ownership — with an initial public offering expected in the second half of 2011.
On Thursday, the government swapped $5.5 billion in mandatory convertible preferred stock for common stock. That boosted its stake from 56.3 percent to 73.8 percent.
The Treasury said the move will help Ally begin to exit government ownership — as it did with General Motors Co.'s IPO in November.
"Ally has made substantial progress in restructuring its operations and improving its financial performance during 2010, and this transaction will position us to begin to exit the investment," said Tim Massad, the Treasury official who oversees the government's bailouts of banks and auto companies...
... "Our ultimate goal in all these investments is to exit as quickly as possible on terms that realize the most value for the taxpayer, and this transaction will facilitate that," Massad said.
Ally CEO Michael Carpenter said the swap "better positions Ally to execute its plan to repay the U.S. taxpayer over time...
... Of Ally's remaining common stock, Cerberus and affiliates hold 8.9 percent; third-party investors 7.4 percent; General Motors Trust 5.9 percent; and General Motors Co. 4.0 percent.
As a result of the conversion and resulting reduction of the equity interests held by GM, the Federal Reserve has determined that GM will no longer be considered an "affiliate" of Ally's retail bank, Ally Bank.
Transactions between Ally Bank and GM will continue to be subject to regulation and examination by the bank's primary federal regulator, the Federal Deposit Insurance Corp...
... Separately, Ally said earlier this week its troubled mortgage unit ResCap reached a settlement with Fannie Mae in which it will pay $461.5 million to settle claims made over whether it didn't live up too mortgage repurchase obligations related to breaches of selling representations and warranties.
The Federal Housing Finance Agency said in July that it issued 64 subpoenas to various entities seeking documents related to private−label mortgage−backed securities in which Fannie Mae and Freddie Mac had invested - including ResCap. The agency has agreed to withdraw the ResCap Party Subpoenas that relate to Fannie Mae.
The Treasury still holds $5.9 billion in preferred stock after Thursday's swap. It previously held $11.4 billion. Preferred stock, unlike common stock, pays interest. The Treasury has received about $2 billion in dividend and interest payments from Ally Financial.
Ally is one of the largest automotive financial services companies and has more than $173 billion in assets as of Sept. 30, 2010.
[So why isn't Ally/GMAC giving more mortgage mods?]
Thursday, December 30, 2010
In Court
Utah Class Action Against ReconTrust/Bank of America: Two Federal Judges Recuse Themselves
by Morgan Skinner, KCSG News Salt Lake City, December 30, 2010
US District Chief Judge Tena Campbell recused herself in the class action lawsuit against ReconTrust and Bank of America (NYSE: "BAC"), Mortgage Electronic Registration Systems ("MERS"), Countrywide Home Loans, HSBC Bank (NYSE: "HSBC"), Wells Fargo Bank (NYSE: "WFC"), U.S. Bank (NYSE: "USB"), Bank of New York/Mellon (NYSE: "BK"), KeyBank (NYSE: "KEY") filed in Utah federal court Friday, November 5, 2010, alleging violations of the, Fair Debt Collections Practices Act, Utah Pattern of Unlawful Activity Act (FDCPA), Unlawful Foreclosures, and Intentional Infliction of Emotional Distress.
Upon Judge Campbell recusal from the case it was sent to Judge Clark Waddoups who has the Peni Cox case pending in his court against ReconTrust and Bank of America. The case is also on appeal to the 10th Circuit Court in Denver, Colorado.
KCSG News has learned from court records filed Thursday that Judge Waddoups has recused himself. Why did Judge Waddoups recuse himself in the class action matter? He didn't recuse himself in the Peni Cox case pending in his court on the same issues against the same defendants, ReconTrust and Bank of America.
Both matters filed in Utah District federal court by attorneys E. Craig Smay and John Christian Barlow allege that ReconTrust has violated the FDCPA by proceeding with non-judicial foreclosure sales. Because ReconTrust lacks the power of sale, its actions are within the definition of debt collection. ReconTrust has used the mail, internet, and other instrumentalities of interstate commerce to attempt to collect the debt. The complaint says ReconTrust has engaged in this pattern of activity repeatedly over the course of many years, and as a result of this activity, each foreclosure is wrongful. The complaint also claims that the intentional and unlawful activity of ReconTrust has caused widespread loss of property and intentional infliction of emotional distress...
... Utah law ... stipulates that all foreign corporations must register to do business in the State of Utah, and only members of the Utah State Bar and Utah Title Insurance companies are allowed to perform non-judicial foreclosures.
The class action complaint is based upon four separate Utah court cases in which the Bank of America through their foreclosure agent, ReconTrust Company has illegally foreclosed on homes in Utah, according to the court records.
Read the class Action complaint HERE.
To inquire if you qualify to join the class, contact E. Craig Smay and John Christian Barlow HERE.
Utah Class Action Against ReconTrust/Bank of America: Two Federal Judges Recuse Themselves
by Morgan Skinner, KCSG News Salt Lake City, December 30, 2010
US District Chief Judge Tena Campbell recused herself in the class action lawsuit against ReconTrust and Bank of America (NYSE: "BAC"), Mortgage Electronic Registration Systems ("MERS"), Countrywide Home Loans, HSBC Bank (NYSE: "HSBC"), Wells Fargo Bank (NYSE: "WFC"), U.S. Bank (NYSE: "USB"), Bank of New York/Mellon (NYSE: "BK"), KeyBank (NYSE: "KEY") filed in Utah federal court Friday, November 5, 2010, alleging violations of the, Fair Debt Collections Practices Act, Utah Pattern of Unlawful Activity Act (FDCPA), Unlawful Foreclosures, and Intentional Infliction of Emotional Distress.
Upon Judge Campbell recusal from the case it was sent to Judge Clark Waddoups who has the Peni Cox case pending in his court against ReconTrust and Bank of America. The case is also on appeal to the 10th Circuit Court in Denver, Colorado.
KCSG News has learned from court records filed Thursday that Judge Waddoups has recused himself. Why did Judge Waddoups recuse himself in the class action matter? He didn't recuse himself in the Peni Cox case pending in his court on the same issues against the same defendants, ReconTrust and Bank of America.
Both matters filed in Utah District federal court by attorneys E. Craig Smay and John Christian Barlow allege that ReconTrust has violated the FDCPA by proceeding with non-judicial foreclosure sales. Because ReconTrust lacks the power of sale, its actions are within the definition of debt collection. ReconTrust has used the mail, internet, and other instrumentalities of interstate commerce to attempt to collect the debt. The complaint says ReconTrust has engaged in this pattern of activity repeatedly over the course of many years, and as a result of this activity, each foreclosure is wrongful. The complaint also claims that the intentional and unlawful activity of ReconTrust has caused widespread loss of property and intentional infliction of emotional distress...
... Utah law ... stipulates that all foreign corporations must register to do business in the State of Utah, and only members of the Utah State Bar and Utah Title Insurance companies are allowed to perform non-judicial foreclosures.
The class action complaint is based upon four separate Utah court cases in which the Bank of America through their foreclosure agent, ReconTrust Company has illegally foreclosed on homes in Utah, according to the court records.
Read the class Action complaint HERE.
To inquire if you qualify to join the class, contact E. Craig Smay and John Christian Barlow HERE.
MERS' Media Response to Rep. Kaptur’s Bill, The Transparency & Security in Mortgage Registration Act of 2010l
December 27, 2010
We have seen the bill and are carefully reviewing its language and analyzing its impact on the mortgage and housing markets.
MERS provided a substantial amount of information in previous committee hearings that addressed misinformation about the role of MERS in the foreclosure process. MERS brings considerable value and clarity to homeowners, regulators and the mortgage industry, and we hope to emphasize those contributions in our conversations with Rep. Kaptur, her staff, and others involved with this legislation.
We are also pleased to note that H.R. 6460 calls for a study on establishing a national database that would maintain information on the transfer of real property interests. The MERS® System, created from the start as a partnership between the public sector and private enterprise, is ready and well-positioned to provide this service to the federal and state governments, county recorders, and the American homeowner. [!]
If you have any questions, please contact Karmela Lejarde at karmelal@mersinc.org
Read Representative Kaptur's bill, H.R. 6460: Transparency and Security in Mortgage Registration Act of 2010 HERE.
Read the testimony given my MERS at congressional committee hearings HERE.
December 27, 2010
We have seen the bill and are carefully reviewing its language and analyzing its impact on the mortgage and housing markets.
MERS provided a substantial amount of information in previous committee hearings that addressed misinformation about the role of MERS in the foreclosure process. MERS brings considerable value and clarity to homeowners, regulators and the mortgage industry, and we hope to emphasize those contributions in our conversations with Rep. Kaptur, her staff, and others involved with this legislation.
We are also pleased to note that H.R. 6460 calls for a study on establishing a national database that would maintain information on the transfer of real property interests. The MERS® System, created from the start as a partnership between the public sector and private enterprise, is ready and well-positioned to provide this service to the federal and state governments, county recorders, and the American homeowner. [!]
If you have any questions, please contact Karmela Lejarde at karmelal@mersinc.org
Read Representative Kaptur's bill, H.R. 6460: Transparency and Security in Mortgage Registration Act of 2010 HERE.
Read the testimony given my MERS at congressional committee hearings HERE.
How a Mortgage Clearinghouse Became a Villain in the Foreclosure Mess
by Ariana Eunjung Cha & Steven Mufson, The Washington Post, December 30, 2010
In the early 1990s, the biggest names in the mortgage industry hatched a plan for a new electronic clearinghouse that would transform the home loan business - and unlock billions of dollars of new investments and profits.
At the time, mortgage documents were moved almost exclusively by hand and mail, a throwback to an era in which people kept stock certificates, too. That made it hard for banks to buy and sell packages of home loans to investors. By contrast, a central electronic clearinghouse would allow the companies to transfer thousands of mortgages instantaneously, greasing the wheels of a system in which loans could be repeatedly and quickly bought and sold.
"Assignments are creatures of 17th-century real property law; they do not coexist easily with high-volume, late 20th-century secondary mortgage market transactions," Phyllis K. Slesinger, then senior director of investor relations for the Mortgage Bankers Association of America, wrote in paper explaining the system.
On March 4, 1994, the MBA unveiled its plan to county recorders who were charged with keeping track of title, signifying the ownership of land. Not everyone was sold on the idea. "There needs to be some outside control or oversight," one recorder said, according to a transcript of the meeting. Another said that if errors were put into the electronic system, "they're really hard to track further down the road."
Sixteen years down the road, the mortgage business is a mess. The electronic clearinghouse has become a reality: The Virginia-based Mortgage Electronic Registrations Systems, a registry with 67 million mortgages on file, has become part of the industry's standard operating procedure.
But critics say promises of transparency and of ironing out wrinkles in record-keeping haven't panned out. The firm, which tracks more than 60 percent of the country's residential mortgages but whose parent company employs just 45 people in a Reston office building, is on the firing line now.
Clerks from counties across the country are suing MERS to collect unpaid filing fees. Several state courts have rejected attempts by MERS to act on behalf of banks seeking to foreclose on delinquent mortgages. And Congress is weighing legislation that would bar home loan giant Fannie Mae from buying any mortgage listed in MERS, potentially a death knell for the registry...
... But in the recent uproar over improperly prepared paperwork in foreclosures, MERS has become the central villain.
"They've tried to turn the mortgage business into ... a production line, but in reality you're dealing with humans, you're not building cars or widgets," said banking lobbyist Rick Hohlt..
... The impetus for a nationwide electronic database of mortgages originally came from the biggest players in the mortgage business - the MBA, Fannie Mae, Freddie Mac and Ginnie Mae - during the early 1990s...
... Although the bankers touted the registry as a way to make mortgage processing more efficient, thus benefiting borrowers, they weren't shy about admitting their main goal: more profits. They estimated that the cost of preparing, recording and mailing 11.1 million loan documents totaled about $210 million in the previous year alone.
In addition, the mortgage bankers had greater ambitions of hyper-charging the market for mortgage-backed securities. Invented in the late 1970s by a trader at Salomon Brothers, these investment packages pooled together thousands of mortgages. They were then sold not only to banks, but to pensions, insurance companies and other big investors...
by Ariana Eunjung Cha & Steven Mufson, The Washington Post, December 30, 2010
In the early 1990s, the biggest names in the mortgage industry hatched a plan for a new electronic clearinghouse that would transform the home loan business - and unlock billions of dollars of new investments and profits.
At the time, mortgage documents were moved almost exclusively by hand and mail, a throwback to an era in which people kept stock certificates, too. That made it hard for banks to buy and sell packages of home loans to investors. By contrast, a central electronic clearinghouse would allow the companies to transfer thousands of mortgages instantaneously, greasing the wheels of a system in which loans could be repeatedly and quickly bought and sold.
"Assignments are creatures of 17th-century real property law; they do not coexist easily with high-volume, late 20th-century secondary mortgage market transactions," Phyllis K. Slesinger, then senior director of investor relations for the Mortgage Bankers Association of America, wrote in paper explaining the system.
On March 4, 1994, the MBA unveiled its plan to county recorders who were charged with keeping track of title, signifying the ownership of land. Not everyone was sold on the idea. "There needs to be some outside control or oversight," one recorder said, according to a transcript of the meeting. Another said that if errors were put into the electronic system, "they're really hard to track further down the road."
Sixteen years down the road, the mortgage business is a mess. The electronic clearinghouse has become a reality: The Virginia-based Mortgage Electronic Registrations Systems, a registry with 67 million mortgages on file, has become part of the industry's standard operating procedure.
But critics say promises of transparency and of ironing out wrinkles in record-keeping haven't panned out. The firm, which tracks more than 60 percent of the country's residential mortgages but whose parent company employs just 45 people in a Reston office building, is on the firing line now.
Clerks from counties across the country are suing MERS to collect unpaid filing fees. Several state courts have rejected attempts by MERS to act on behalf of banks seeking to foreclose on delinquent mortgages. And Congress is weighing legislation that would bar home loan giant Fannie Mae from buying any mortgage listed in MERS, potentially a death knell for the registry...
... But in the recent uproar over improperly prepared paperwork in foreclosures, MERS has become the central villain.
"They've tried to turn the mortgage business into ... a production line, but in reality you're dealing with humans, you're not building cars or widgets," said banking lobbyist Rick Hohlt..
... The impetus for a nationwide electronic database of mortgages originally came from the biggest players in the mortgage business - the MBA, Fannie Mae, Freddie Mac and Ginnie Mae - during the early 1990s...
... Although the bankers touted the registry as a way to make mortgage processing more efficient, thus benefiting borrowers, they weren't shy about admitting their main goal: more profits. They estimated that the cost of preparing, recording and mailing 11.1 million loan documents totaled about $210 million in the previous year alone.
In addition, the mortgage bankers had greater ambitions of hyper-charging the market for mortgage-backed securities. Invented in the late 1970s by a trader at Salomon Brothers, these investment packages pooled together thousands of mortgages. They were then sold not only to banks, but to pensions, insurance companies and other big investors...
... some borrowers don't have access to all that information. MERS gives investors the right to withhold their names from being displayed in the database, and about 3 percent do so...
... Nobody at MERS is responsible for due diligence, to go back and question whether the information they're getting is accurate. It's just like a computer program. If you're going to put garbage in, you're going to get garbage out."
Phyllis K. Walters, a recorder from Illinois who led the opposition to MERS in the 1990s, said that in her district the chain of title for a parcel of land goes back to 1839 and never got broken until banks started recording, and foreclosing, in the name of MERS.
"If things had been recorded in our offices," she said, "we wouldn't be in this mess."
Where are the Regulators?
2011 Will Bring More De facto Decriminalization of Elite Financial Fraud
by Bill Black, New Deal 2.0, Franklin & Eleanor Roosevelt Institute, December 28, 2010
What’s coming in 2011? We asked thought leaders to share their perspectives on the biggest challenges for the year ahead, along with the changes they’d like to see and the hopes they cherish. Our very own Bill Black takes a hard look at the criminal justice system — and how financial fraudsters are beating it.
The role of the criminal justice system with regard to financial fraud by elite bankers in 2011 is likely to reprise its role last decade — de facto decriminalization. The Galleon investigation of insider trading at hedge funds will take much of the FBI’s and the Department of Justice’s (DOJ) focus.
The state attorneys general investigations of foreclosure fraud do focus on the major players such as the Bank of America (BoA), but they are unlikely to lead to criminal liability for any senior bank officials. It is most likely that they will lead to financial settlements that include new funding for loan modifications.
The FBI and the DOJ remain unlikely to prosecute the elite bank officers that ran the enormous “accounting control frauds” that drove the financial crisis. While over 1000 elites were convicted of felonies arising from the savings and loan (S&L) debacle, there are no convictions of controlling officers of the large nonprime lenders. The only indictment of controlling officers of a far smaller nonprime lender arose not from an investigation of the nonprime loans but rather from the lender’s alleged efforts to defraud the federal government’s TARP bailout program.
What has gone so catastrophically wrong with DOJ, and why has it continued so long? The fundamental flaw is that DOJ’s senior leadership cannot conceive of elite bankers as criminals. On Huffington Post, David Heath writes:
Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent. An investor in loans who documents fraud can force a bank to buy the loan back. But convincing a jury that executives intended to make fraudulent loans, and thus should be held criminally responsible, may be too difficult of a hurdle for prosecutors. ‘It doesn’t make any sense to me that they would be deliberately defrauding themselves,’ Wagner said.”
Mr. Wagner is confused by his own pronouns: “It doesn’t make any sense to me that they would be deliberately defrauding themselves.” This direct quotation needs to be read in conjunction with the author’s description of his position: “banks lose money” when loans “turn out to be fraudulent.
Wagner was responding to a question about control fraud — frauds led by the person controlling the seemingly legitimate entity who uses it as a “weapon.” The relevant “they” is the person looting the bank — the CEO. The word “themselves” refers not to the CEO, but rather to the bank. The CEO is not looting the CEO; he is looting the bank’s creditors and shareholders. Two titles capture this well known fraud dynamic. The Nobel laureate in economics, George Akerlof, and Paul Romer co-authored "Looting: the Economic Underworld of Bankruptcy for Profit" in 1993 and I wrote The Best Way to Rob a Bank is to Own One (2005). The CEO becomes wealthy by looting the bank. He uses accounting as his ammunition because, to quote Akerlof & Romer, it is “a sure thing.” The firm fails (or in the modern era, is bailed out), but the CEO walks away wealthy.
Here is the four-part recipe for maximizing fraudulent accounting income in the short-term:
1. Grow extremely rapidly
2. By making bad loans at high yields
3. While employing extreme leverage, and
4. Providing only minimal loss reserves
A bank that follows this recipe is mathematically guaranteed to report record income in the near term. The first two ingredients in the recipe are linked. A bank in a reasonably competitive, mature market such as home mortgage lending cannot decide to grow extremely rapidly by making good loans. A bank can, however, guarantee its ability to grow rapidly — and charge a premium yield — if it lends to the tens of millions of people who cannot afford to own a home. Equally importantly, if many lenders follow the same recipe they will cause a financial bubble to hyper-inflate. Financial bubbles extend the lives of accounting control frauds by making it simple to refinance loans to those who cannot afford to purchase the asset. The longer that delinquencies and defaults can be delayed the more the CEO can loot the bank.
Note that the same recipe that maximizes short-term fictional income in the near term maximizes real losses in the longer term. Mr. Wagner is unable to understand that accounting control fraud represents the ultimate “agency” problem — the unfaithful agent (the CEO) enriches himself at the expense of the principals he is supposed to serve and the firm’s creditors. Agency problems are well known to white-collar criminologists, economists, lawyers that practice corporate, securities, or criminal law, and financial regulators. Yes, accounting control fraud causes the bank to suffer huge losses. The loans don’t “turn out to be fraudulent” — they are fraudulent when made. The recognition of the losses is delayed when an epidemic of accounting control fraud hyper-inflates a bubble, but the bubble will increase the ultimate losses. Sacramento, California is one of the epicenters of the mortgage fraud that drove the financial crisis, so Mr. Wagner’s lack of understanding of fraud mechanisms is particularly harmful.
Financial regulators are essential to prevent this kind of error by senior prosecutors. The regulators have to serve as the Sherpas for the criminal justice system to succeed against epidemics of control fraud. The FBI cannot have hundreds of agents expert in many hundreds of industries. The regulators have to do the heavy investigative lifting. They have the expertise and greater staff resources. The regulators also have to serve as the guides. Their criminal referrals have to provide the roadmaps that allow the FBI to conduct successful investigations. The regulators played this role successfully at key times during the S&L debacle, filing thousands of criminal referrals that led to over 1000 priority felony convictions. During the current crisis the OCC and the OTS - combined - made zero criminal referrals. None of the federal regulatory agencies appear to have enforced the regulatory mandate that federally insured depositories file criminal referrals - and noncompliance with that requirement was and is the norm. There is no indication that the FBI has demanded that the regulators enforce their rules.
Absent guidance and support from the regulators, the FBI turned to the worst conceivable source of guidance and support - the trade association of the “perps” — the Mortgage Bankers Association (MBA). The MBA, predictably, defined its members as the victims of mortgage fraud. The MBA invented a nonsensical definition of mortgage fraud which made accounting control fraud impossible. All fraud supposedly fell into one of two categories: “fraud for housing” or “fraud for profit.” The MBA members are, in fact, victims of accounting control fraud. The mortgage banks, however, do not set MBA policy. The CEOs of the mortgage banks determine MBA policy and they are not about to tell the FBI that they are the primary source of the epidemic of mortgage fraud. Similarly, they are not about to make criminal referrals, which might cause the FBI to investigate why some lenders made loans that were overwhelmingly fraudulent. MBA members virtually never made criminal referrals even though they made millions of fraudulent loans. Why don’t the victims make criminal referrals and help the FBI protect them from the frauds?
Why did an industry, home mortgage lending, which had traditionally been able to keep losses from all sources to roughly one percent suddenly begin to suffer 80-100 percent fraud incidence on “liar’s” loans? Why would an honest mortgage lender make “liar’s” loans knowing that doing so would produce intense “adverse selection” and a “negative expected value”? They would not do so. They were not mandated to do so by federal regulation or law. They were not encouraged to do so by federal regulation or law. They did so because their CEOs decided they would do so in order to maximize fictional income and real bonuses. The CEOs increased the number of liar’s loans they made after they were warned by the FBI that there was an “epidemic” of mortgage fraud and the FBI predicted it would cause an “economic crisis” were it not contained. The CEOs increased their liar’s loans after the MBA’s own anti-fraud experts stated that they deserved the name “liar’s” loans because they were pervasively fraudulent and after those experts said that “liar’s” loans were “an open invitation to fraudsters.” The industry’s formal euphemisms for liar’s loans were “alt-a” and “stated income” loans. None of this makes sense for honest CEOs.
The federal regulators have not made any public study of liar’s loans. The FDIC and OTS’ joint data system on mortgages is an anti-study — it uses a categorization system that ignores whether the loans were underwritten. This makes the data base useless for studying loans made without full underwriting — the loans that were overwhelmingly fraudulent and drove the crisis. Credit Suisse reported that mortgage loans without full underwriting constituted 49% of all new originations in 2006. If that percentage is even in the ballpark it indicates that that there were millions of fraudulent loans originated in 2005-2007. It is appalling that the regulators are not studying the facts necessary to understand the crisis and hold the perpetrator accountable.
Fortunately, the state attorneys general have studied these mechanisms and they have found that it was the lenders and their agents that overwhelmingly (1) prompted the false loan application data and (2) coerced appraisers to inflate market values. An honest lender would never engage in either practice or permit its agents to do so. The federal regulators, however, have spent their passion trying to preempt state efforts to protect borrowers. The federal regulators took no effective action in response to the State AGs’ findings.
The combined effect of these private sector, regulatory, and criminal justice failures has created a set of intellectual blinders that have caused DOJ to mischaracterize the nature of mortgage fraud. [George Bush's] Attorney General Mukasey famously dismissed the epidemic of mortgage fraud as “white-collar street crime.” He did so in the context of refusing to establish a national task force against mortgage fraud. A national task force is essential in this crisis because of the national lending scope of many of the worst accounting control frauds. Attorney General Holder has maintained Mukasey’s passive approach to the elite frauds that drove the crisis.
The U.S. needs to take three major steps to be effective against the epidemic of accounting control fraud. First, DOJ needs to realize that it is dealing with accounting control fraud. That task is not terribly difficult. The criminology, economics, and regulatory literature — as well as the data on fraud and analytics are all readily available. The FBI must end its “partnership” with the MBA
Second, the regulators need new leadership picked for a track record of success as vigorous regulators and a willingness to hold elites accountable regardless of their political allies. The regulators need to make assisting prosecutions, and bringing civil and enforcement actions, against the senior officers that led the control frauds their top priority. The regulators need to make detailed criminal referrals, enforce vigorously the regulatory mandate that insured depositories file criminal referrals, and prioritize banks that made large numbers of nonprime loans but few criminal referrals. The regulators need to work with DOJ to prioritize the cases. In the S&L debacle we used a formal process to create our “Top 100″ priority cases. The regulators need to investigate rigorously every large nonprime lending specialist by creating a comprehensive national data base. We have unique opportunities given the massive holding of nonprime paper by the Fed and Fannie and Freddie to create a reliable data base and use it to conduct reliable studies and investigations.
Third, the regulators and the DOJ need to partner with the SEC and the state AGs to share data (where appropriate under Grand Jury rule 6e). The federal regulators need to end their unholy war against state regulatory efforts and the SEC needs to end its disdain for the state AGs. The SEC needs to clean up accounting and the Big Four audit firms. The bank control frauds’ “weapon of choice” is accounting. The Big Four audit firms consistently gave clean opinions to even the most egregious frauds. Provisions for losses (ALLL) fell to farcical levels. Losses were not recognized. Clear evidence of endemic fraud was ignored.
What are the prospects for these three vital changes occurring in 2011? They are poor. There is no evidence that any of the three changes is in process. The new House committee chairs have championed even weaker regulation and have not championed the prosecution of Wall Street elites.
The media, however, has begun to pick up our warnings about the failure of the criminal justice response to the epidemic of fraud. Prominent economists, particularly Joseph Stiglitz and Alan Greenspan, have joined Akerlof, Romer, Galbraith,Wray, and Prasch in emphasizing the key role that elite fraud played in driving this crisis. Even Andrew Ross Sorkin, generally seen as an apologist for the Street’s elites, has decried the lack of prosecutions.
Our best bet is to continue to win the scholarly disputes and to continue to push media representatives to take fraud seriously. If the media demands for prosecution of the elite banking frauds expand there is a chance to create a bipartisan coalition in Congress and the administration supporting prosecutions. In the S&L debacle, Representative Annunzio was one of the leading opponents of reregulation and leading supporters of Charles Keating. After we brought several hundred successful prosecutions he began wearing a huge button: “Jail the S&L Crooks!” Bringing many hundreds of enforcement actions, civil suits, and prosecutions causes huge changes in the way a crisis is perceived. It makes tens of thousands of documents detailing the frauds public. It generates thousands of national and local news stories discussing the nature of the frauds and how wealthy the senior officers became through the frauds. All of this increases the saliency of fraud and increases demands for serious reforms, adequate resources for the regulators and criminal justice bodies, and makes clear that elite fraud poses a severe danger. Collectively, this creates the political space for real reform, vigorous regulators, and real prosecutors.
Bill Black is a NewDeal2.0 braintruster, an associate professor of economics and law at the University of Missouri-Kansas City, a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One.
2011 Will Bring More De facto Decriminalization of Elite Financial Fraud
by Bill Black, New Deal 2.0, Franklin & Eleanor Roosevelt Institute, December 28, 2010
What’s coming in 2011? We asked thought leaders to share their perspectives on the biggest challenges for the year ahead, along with the changes they’d like to see and the hopes they cherish. Our very own Bill Black takes a hard look at the criminal justice system — and how financial fraudsters are beating it.
The role of the criminal justice system with regard to financial fraud by elite bankers in 2011 is likely to reprise its role last decade — de facto decriminalization. The Galleon investigation of insider trading at hedge funds will take much of the FBI’s and the Department of Justice’s (DOJ) focus.
The state attorneys general investigations of foreclosure fraud do focus on the major players such as the Bank of America (BoA), but they are unlikely to lead to criminal liability for any senior bank officials. It is most likely that they will lead to financial settlements that include new funding for loan modifications.
The FBI and the DOJ remain unlikely to prosecute the elite bank officers that ran the enormous “accounting control frauds” that drove the financial crisis. While over 1000 elites were convicted of felonies arising from the savings and loan (S&L) debacle, there are no convictions of controlling officers of the large nonprime lenders. The only indictment of controlling officers of a far smaller nonprime lender arose not from an investigation of the nonprime loans but rather from the lender’s alleged efforts to defraud the federal government’s TARP bailout program.
What has gone so catastrophically wrong with DOJ, and why has it continued so long? The fundamental flaw is that DOJ’s senior leadership cannot conceive of elite bankers as criminals. On Huffington Post, David Heath writes:
Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent. An investor in loans who documents fraud can force a bank to buy the loan back. But convincing a jury that executives intended to make fraudulent loans, and thus should be held criminally responsible, may be too difficult of a hurdle for prosecutors. ‘It doesn’t make any sense to me that they would be deliberately defrauding themselves,’ Wagner said.”
Mr. Wagner is confused by his own pronouns: “It doesn’t make any sense to me that they would be deliberately defrauding themselves.” This direct quotation needs to be read in conjunction with the author’s description of his position: “banks lose money” when loans “turn out to be fraudulent.
Wagner was responding to a question about control fraud — frauds led by the person controlling the seemingly legitimate entity who uses it as a “weapon.” The relevant “they” is the person looting the bank — the CEO. The word “themselves” refers not to the CEO, but rather to the bank. The CEO is not looting the CEO; he is looting the bank’s creditors and shareholders. Two titles capture this well known fraud dynamic. The Nobel laureate in economics, George Akerlof, and Paul Romer co-authored "Looting: the Economic Underworld of Bankruptcy for Profit" in 1993 and I wrote The Best Way to Rob a Bank is to Own One (2005). The CEO becomes wealthy by looting the bank. He uses accounting as his ammunition because, to quote Akerlof & Romer, it is “a sure thing.” The firm fails (or in the modern era, is bailed out), but the CEO walks away wealthy.
Here is the four-part recipe for maximizing fraudulent accounting income in the short-term:
1. Grow extremely rapidly
2. By making bad loans at high yields
3. While employing extreme leverage, and
4. Providing only minimal loss reserves
A bank that follows this recipe is mathematically guaranteed to report record income in the near term. The first two ingredients in the recipe are linked. A bank in a reasonably competitive, mature market such as home mortgage lending cannot decide to grow extremely rapidly by making good loans. A bank can, however, guarantee its ability to grow rapidly — and charge a premium yield — if it lends to the tens of millions of people who cannot afford to own a home. Equally importantly, if many lenders follow the same recipe they will cause a financial bubble to hyper-inflate. Financial bubbles extend the lives of accounting control frauds by making it simple to refinance loans to those who cannot afford to purchase the asset. The longer that delinquencies and defaults can be delayed the more the CEO can loot the bank.
Note that the same recipe that maximizes short-term fictional income in the near term maximizes real losses in the longer term. Mr. Wagner is unable to understand that accounting control fraud represents the ultimate “agency” problem — the unfaithful agent (the CEO) enriches himself at the expense of the principals he is supposed to serve and the firm’s creditors. Agency problems are well known to white-collar criminologists, economists, lawyers that practice corporate, securities, or criminal law, and financial regulators. Yes, accounting control fraud causes the bank to suffer huge losses. The loans don’t “turn out to be fraudulent” — they are fraudulent when made. The recognition of the losses is delayed when an epidemic of accounting control fraud hyper-inflates a bubble, but the bubble will increase the ultimate losses. Sacramento, California is one of the epicenters of the mortgage fraud that drove the financial crisis, so Mr. Wagner’s lack of understanding of fraud mechanisms is particularly harmful.
Financial regulators are essential to prevent this kind of error by senior prosecutors. The regulators have to serve as the Sherpas for the criminal justice system to succeed against epidemics of control fraud. The FBI cannot have hundreds of agents expert in many hundreds of industries. The regulators have to do the heavy investigative lifting. They have the expertise and greater staff resources. The regulators also have to serve as the guides. Their criminal referrals have to provide the roadmaps that allow the FBI to conduct successful investigations. The regulators played this role successfully at key times during the S&L debacle, filing thousands of criminal referrals that led to over 1000 priority felony convictions. During the current crisis the OCC and the OTS - combined - made zero criminal referrals. None of the federal regulatory agencies appear to have enforced the regulatory mandate that federally insured depositories file criminal referrals - and noncompliance with that requirement was and is the norm. There is no indication that the FBI has demanded that the regulators enforce their rules.
Absent guidance and support from the regulators, the FBI turned to the worst conceivable source of guidance and support - the trade association of the “perps” — the Mortgage Bankers Association (MBA). The MBA, predictably, defined its members as the victims of mortgage fraud. The MBA invented a nonsensical definition of mortgage fraud which made accounting control fraud impossible. All fraud supposedly fell into one of two categories: “fraud for housing” or “fraud for profit.” The MBA members are, in fact, victims of accounting control fraud. The mortgage banks, however, do not set MBA policy. The CEOs of the mortgage banks determine MBA policy and they are not about to tell the FBI that they are the primary source of the epidemic of mortgage fraud. Similarly, they are not about to make criminal referrals, which might cause the FBI to investigate why some lenders made loans that were overwhelmingly fraudulent. MBA members virtually never made criminal referrals even though they made millions of fraudulent loans. Why don’t the victims make criminal referrals and help the FBI protect them from the frauds?
Why did an industry, home mortgage lending, which had traditionally been able to keep losses from all sources to roughly one percent suddenly begin to suffer 80-100 percent fraud incidence on “liar’s” loans? Why would an honest mortgage lender make “liar’s” loans knowing that doing so would produce intense “adverse selection” and a “negative expected value”? They would not do so. They were not mandated to do so by federal regulation or law. They were not encouraged to do so by federal regulation or law. They did so because their CEOs decided they would do so in order to maximize fictional income and real bonuses. The CEOs increased the number of liar’s loans they made after they were warned by the FBI that there was an “epidemic” of mortgage fraud and the FBI predicted it would cause an “economic crisis” were it not contained. The CEOs increased their liar’s loans after the MBA’s own anti-fraud experts stated that they deserved the name “liar’s” loans because they were pervasively fraudulent and after those experts said that “liar’s” loans were “an open invitation to fraudsters.” The industry’s formal euphemisms for liar’s loans were “alt-a” and “stated income” loans. None of this makes sense for honest CEOs.
The federal regulators have not made any public study of liar’s loans. The FDIC and OTS’ joint data system on mortgages is an anti-study — it uses a categorization system that ignores whether the loans were underwritten. This makes the data base useless for studying loans made without full underwriting — the loans that were overwhelmingly fraudulent and drove the crisis. Credit Suisse reported that mortgage loans without full underwriting constituted 49% of all new originations in 2006. If that percentage is even in the ballpark it indicates that that there were millions of fraudulent loans originated in 2005-2007. It is appalling that the regulators are not studying the facts necessary to understand the crisis and hold the perpetrator accountable.
Fortunately, the state attorneys general have studied these mechanisms and they have found that it was the lenders and their agents that overwhelmingly (1) prompted the false loan application data and (2) coerced appraisers to inflate market values. An honest lender would never engage in either practice or permit its agents to do so. The federal regulators, however, have spent their passion trying to preempt state efforts to protect borrowers. The federal regulators took no effective action in response to the State AGs’ findings.
The combined effect of these private sector, regulatory, and criminal justice failures has created a set of intellectual blinders that have caused DOJ to mischaracterize the nature of mortgage fraud. [George Bush's] Attorney General Mukasey famously dismissed the epidemic of mortgage fraud as “white-collar street crime.” He did so in the context of refusing to establish a national task force against mortgage fraud. A national task force is essential in this crisis because of the national lending scope of many of the worst accounting control frauds. Attorney General Holder has maintained Mukasey’s passive approach to the elite frauds that drove the crisis.
The U.S. needs to take three major steps to be effective against the epidemic of accounting control fraud. First, DOJ needs to realize that it is dealing with accounting control fraud. That task is not terribly difficult. The criminology, economics, and regulatory literature — as well as the data on fraud and analytics are all readily available. The FBI must end its “partnership” with the MBA
Second, the regulators need new leadership picked for a track record of success as vigorous regulators and a willingness to hold elites accountable regardless of their political allies. The regulators need to make assisting prosecutions, and bringing civil and enforcement actions, against the senior officers that led the control frauds their top priority. The regulators need to make detailed criminal referrals, enforce vigorously the regulatory mandate that insured depositories file criminal referrals, and prioritize banks that made large numbers of nonprime loans but few criminal referrals. The regulators need to work with DOJ to prioritize the cases. In the S&L debacle we used a formal process to create our “Top 100″ priority cases. The regulators need to investigate rigorously every large nonprime lending specialist by creating a comprehensive national data base. We have unique opportunities given the massive holding of nonprime paper by the Fed and Fannie and Freddie to create a reliable data base and use it to conduct reliable studies and investigations.
Third, the regulators and the DOJ need to partner with the SEC and the state AGs to share data (where appropriate under Grand Jury rule 6e). The federal regulators need to end their unholy war against state regulatory efforts and the SEC needs to end its disdain for the state AGs. The SEC needs to clean up accounting and the Big Four audit firms. The bank control frauds’ “weapon of choice” is accounting. The Big Four audit firms consistently gave clean opinions to even the most egregious frauds. Provisions for losses (ALLL) fell to farcical levels. Losses were not recognized. Clear evidence of endemic fraud was ignored.
What are the prospects for these three vital changes occurring in 2011? They are poor. There is no evidence that any of the three changes is in process. The new House committee chairs have championed even weaker regulation and have not championed the prosecution of Wall Street elites.
The media, however, has begun to pick up our warnings about the failure of the criminal justice response to the epidemic of fraud. Prominent economists, particularly Joseph Stiglitz and Alan Greenspan, have joined Akerlof, Romer, Galbraith,Wray, and Prasch in emphasizing the key role that elite fraud played in driving this crisis. Even Andrew Ross Sorkin, generally seen as an apologist for the Street’s elites, has decried the lack of prosecutions.
Our best bet is to continue to win the scholarly disputes and to continue to push media representatives to take fraud seriously. If the media demands for prosecution of the elite banking frauds expand there is a chance to create a bipartisan coalition in Congress and the administration supporting prosecutions. In the S&L debacle, Representative Annunzio was one of the leading opponents of reregulation and leading supporters of Charles Keating. After we brought several hundred successful prosecutions he began wearing a huge button: “Jail the S&L Crooks!” Bringing many hundreds of enforcement actions, civil suits, and prosecutions causes huge changes in the way a crisis is perceived. It makes tens of thousands of documents detailing the frauds public. It generates thousands of national and local news stories discussing the nature of the frauds and how wealthy the senior officers became through the frauds. All of this increases the saliency of fraud and increases demands for serious reforms, adequate resources for the regulators and criminal justice bodies, and makes clear that elite fraud poses a severe danger. Collectively, this creates the political space for real reform, vigorous regulators, and real prosecutors.
Bill Black is a NewDeal2.0 braintruster, an associate professor of economics and law at the University of Missouri-Kansas City, a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One.
Bank of America has reported it’s completion of 22,000 mortgage modifications for distressed homeowners in November 2010. They have assisted 746,000 of their customers get more affordable payments with modifications since January of 08...
... Since the beginning of the HAMP program, Bank of America ... have nearly 93,500 permanent modifications started, with nearly 84,000 still active at the end of November. The lender reports nearly 6,000 of their customers shifted from trial to permanent modifications in November.
Since the inception of the government’s Home Affordable Modification Program (HAMP) last year, Bank of America leads the industry with nearly 93,500 permanent modifications started, with nearly 84,000 still active at the end of November. Nearly 6,000 Bank of America customers moved from trial to permanent modifications last month, more than in any month since June.
[Note that Bank of America's numbers are larger because it is the largest bank, with the most mortgages outstanding - the above numbers do not inform as to the percentage of its total mortgage customers have had their mortgages modified.]
Chase Mortgage
Last month Chase was reported to have 222,988 HAMP Trials that had started. Their active trial Modifications were of a count of 17,501. Chase’s HAMP Permanent Modifications that were started counted out to be 76,140. And to finish it off, their Permanent Modifications that were active turned out to be 67,722.
Wells Fargo
On December 22, Wells Fargo announced 600,629 active trial and completed modifications that the company had started since the HAMP program had begun. Well’s total includes over 500,000 modifications that they had done themselves, and over 85,000 modifications that were done under the HAMP program.
Less than 2% of mortgage loans that were serviced by Wells Fargo went into foreclosure in the last 12 months. Reports show that exactly 92% of Well’s customers stayed current with their monthly mortgage payments. This was reported for the third quarter of 2010.
Citimortgage
November Performance reports, report that Citimortgage had 153,178 HAMP Trials start last month. Throughout November 8,580 Active Trial Modifications from Citi stayed active. It was also reported that Citi had 55,333 HAMP Permanent Modifications that were started, and 52,856 of their HAMP Permanent Modifications remained active.
GMAC Mortgage
GMAC mortgage reported in November, 2010, to have 53,771 HAMP Trial Modifications that started. 4,071 of them were reported to be active. The count of HAMP Permanent Modifications that started with Citi was 36,718, and 34,116 Permanent Modifications were active.
Ocwen Financial Corporation
2010’s November reported Ocwen Financial Corporation had 38,077 HAMP Trials that started, with 5,576 that were active by the end of that month. The company had 27,813 HAMP Permanent Modifications that started, and 24,454 Permanent Modifications were reported active.
American Home Mortgage Servicing Inc (AHMSI)
HAMP Trials that started with this servicer in November were 28,270, while 8,437 of those Trial modifications were active. Reports show that the company had 17,204 Permanent HAMP Modifications that had started in November, and 16,167 of those were active.
Wednesday, December 29, 2010
AG Richard Cordray Updates Progress of 50-State Foreclosure Investigation & Advocates Strict Review of Affidavits in Letter to Ohio Judges
December 28, 2010
Re: Fraudulent Foreclosure Affidavits
Dear Judge _________________,
On September 28, October 18, and October 29, 2010, I wrote to you and the other presiding and administrative judges of the Ohio Courts of Common Pleas, noting widespread questions about the accuracy of affidavits filed in foreclosure cases by GMAC Mortgage, Bank of America, JPMorgan Chase, PNC, Wells Fargo and others. I am writing to update you on developments in this area.
In my last letter, I asked you to send my office affidavits signed by robo-signers as wellas any motions you received from foreclosure counsel to submit a new affidavit or ratify aforeclosure judgment. A number of you have done so, and I thank you for helping us keep track of the situation. Our office is deciding whether and how to take action in these individual cases.
Several courts have taken their own actions to address this situation. The Cuyahoga County Court of Common Pleas has issued a policy on foreclosure affidavits, recommending that its judges issue an order requiring a lender who submitted a robo-signed affidavit, pre or post-judgment, to show cause why the case should not be dismissed without prejudice. In the future,counsel for a lender in a foreclosure proceeding must sign an affidavit attesting that counsel has reviewed the file and confirmed with his or her client that the client reviewed the file. The policy, which is currently under review, and template affidavit are available at
http://cp.cuyahogacounty.us/internet/Foreclosure.aspx.
Judge Charles Pater of the Butler County Court of Common Pleas issued an order denying GMAC’s motion to ratify a judgment because “neither the Ohio Civil Rules nor the local rules of this court provide a procedure for or authorize a court to ‘ratify’ a final appealable order” and stating that “the proper course of action would be for GMAC to first file a motion to set aside its judgment and then, once the court grants that motion, to refile its motion for summary judgment with a correctly executed affidavit in support.”
Judge Pater’s order is attached to this letter. As I stated in my October 29 letter, “it is improper for the plaintiff to ask the court to ratify a foreclosure judgment based on a false affidavit after the fact by simply substituting or supplementing what plaintiff now claims is a proper affidavit.” Rather, I believe vacating the judgment is the proper way to handle these cases, as it removes a judgment based ona false affidavit and gives the homeowner an opportunity to contest a new motion for default or summary judgment.
Judge Nancy Russo of the Cuyahoga County Court of Common Pleas has scheduled a hearing requiring a foreclosure plaintiff “to provide the court with proof of integrity of alldocuments submitted.” Our office has intervened in the case, US Bank, NA v. Renfro, Cuyahoga County Court of Common Pleas Case No. CV-10-716322.
Judge John Bender of the Franklin County Court of Common Pleas issued an order in a foreclosure case requiring that foreclosure counsel “personally certify the authenticity and accuracy of all documents submitted in support of judgment.”
Judge Andrew Logan of the Trumbull County Court of Common Pleas sent a letter to foreclosure counsel requiring that affidavits state that the signatory “has personal knowledge of the file and has personally reviewed the documents.”
On the litigation front, my lawsuit against GMAC Mortgage continues. GMAC removed the case to federal court, and the case is now in the United States District Court for the Northern District of Ohio. I also continue to work with the 50-state multi-state investigation of robo-signing, and we are meeting with a number of interested parties to attempt to craft a solution tha tbenefits both homeowners and lenders.
As I have stated before, I urge you to review affidavits in foreclosure cases very closely. Sanctions for filing fraudulent evidence may well be appropriate, and this financial exposure could lead plaintiffs in foreclosure cases to seek negotiated resolutions rather than proceeding to judgment. I will continue to keep you updated on any further developments.
Please feel free to contact me or Susan Choe, my Consumer Protection Section Chief, at 614-466-1305, if we can provide any further information about these issues. Thank you.
Sincerely,
Richard CordrayOhio Attorney GeneralCC:Sarah Lynn, Deputy Chief Counsel, Ohio Attorney General
Susan Choe, Consumer Protection Section Chief, Ohio Attorney General
--------------------------------
The Foreclosure Committee has considered the seriousness of these recent disclosures and recommends the following in all residential mortgage foreclosure cases:
• In prejudgment cases where a lender has requested a delay in the proceedings to examine evidence it has submitted or otherwise calls into question the validity of the evidence its has submitted, the Committee recommends the entry of an order requiring plaintiff within thirty days to show cause why the case should not be dismissed without prejudice.
• In post judgment cases where the lender has requested a delay in the proceedings to examine evidence it has submitted in support of its judgment or otherwise calls into question the validity of the evidence its has submitted, the Committee recommends the entry of an order requiring plaintiff within thirty days to show cause why the case should not be dismissed and the judgment vacated.
• In any case where the lender seeks to remove the case from the active docket to examine evidence it has submitted, the Committee recommends that the motion be denied as improper under the rules of Civil Procedure and Superintendence. Following denial of the motion, an order as described above should be entered.
• The Committee further recommends the entry of the following as a standing order in all residential mortgage foreclosure cases:
All affidavits filed in residential mortgage foreclosure cases must indicate that the affiant has actual personal knowledge of the file and loan history in question and has personally reviewed the documents, records, or other data relied upon to make the statements contained in the affidavit. Failure to provide appropriate affidavits may result in mandatory personal attendance of an affiant for a hearing, the imposition of sanctions and penalties for perjury or contempt, and dismissal of the case.
Before judgment is entered on any claim for foreclosure and/or money judgment in a residential mortgage foreclosure case, counsel for plaintiff and any other party that asserts a claim for foreclosure or money judgment must file an Affidavit. This Affidavit must:
1) Identify the counsel of record and his or her law firm.
2) Provide that the counsel of record has reviewed the file.
3) Provide that the counsel of record has communicated with a representative of the party seeking foreclosure and/or money judgment and that this representative has affirmed that he or she has personally reviewed the documents, records, or other data related to the case; has reviewed the pleadings and other court filings in the case; and has confirmed both the factual accuracy of the pleadings and court filings and the accuracy of the notarizations contained therein.
4) Provide the full name of the representative described in Item 3 and the date or dates of the communication.
5) Certify that, to the best of the counsel of record’s knowledge, the pleadings and other court filings in support of the claims for foreclosure are complete and accurate in all relevant respects.
6) Acknowledge that counsel of record has a continuing obligation to amend and supplement the Affidavit in light of newly discovered facts following its filing.
7) Be signed and dated by counsel of record.
Failure to submit an appropriate Affidavit on or before the date of trial, the date that a motion for summary judgment is ripe for ruling, or the date of default hearing, whichever is applicable, will result in dismissal of the case and may result in further sanctions.
Standardized Affidavit Forms are posted on the County website. All affidavits submitted pursuant to this order must be in the format of these Standardized Affidavit Forms.
In lieu of this affidavit:
1) In cases where client affidavits have been filed, the affiant or affiants must appear at the hearing of the matter and testify regarding those affidavits. The representative must appear in person and telephonic appearance will not be permitted. If multiple client affidavits are filed in the case and are executed by more more that one affiant, each affiant must appear at the hearing of the matter
2) In cases were no client affidavits have been filed, an officer of the party seeking foreclosure must appear at the hearing of the matter and testify in support of the allegations of the complaint and contents of other documents or court filings. The officer of the party seeking foreclosure must appear in person and telephonic appearance will not be permitted.
3) In cases where no hearing is scheduled before the entry of judgment (such as some summary judgment cases), the party seeking foreclosure must, contemporaneously with the motion for summary judgment, move to schedule a hearing at which the affiant must appear.
4) The affiant or officer of the party seeking foreclosure who appears in court in lieu of the filing of a foreclosure counsel affidavit must appear with the original promissory note, including all endorsements and allonges and a current payment history for the mortgage loan at issue. The affiant or officer of the party seeking foreclosure must be prepared to testify that he or she has personally reviewed the documents, records or other data related to the case, has reviewed the pleadings and other court filings in the case and has confirmed both the factual accuracy of the filings and the accuracy of the notarizations contained in affidavits filed in the case, if any. The affiant or officer of the party seeking foreclosure must be prepared to respond to the questioning of the magistrate or judge presiding over the hearing and the questioning of any other party attending the hearing.
5) If the affiant or officer of the party seeking foreclosure has been previously deposed and has testified under oath regarding the above required information, the filing of the transcript of that deposition will satisfy the requirements of this policy. Failure to file an attorney affidavit or do any of the alternatives to filing an attorney affidavit before the case is ripe for the entry of judgment will result in dismissal of the case.
● All magistrates who do not receive contrary instructions from the judges to whom they are assigned will begin mplementing the above procedures beginning immediately.
December 28, 2010
Re: Fraudulent Foreclosure Affidavits
Dear Judge _________________,
On September 28, October 18, and October 29, 2010, I wrote to you and the other presiding and administrative judges of the Ohio Courts of Common Pleas, noting widespread questions about the accuracy of affidavits filed in foreclosure cases by GMAC Mortgage, Bank of America, JPMorgan Chase, PNC, Wells Fargo and others. I am writing to update you on developments in this area.
In my last letter, I asked you to send my office affidavits signed by robo-signers as wellas any motions you received from foreclosure counsel to submit a new affidavit or ratify aforeclosure judgment. A number of you have done so, and I thank you for helping us keep track of the situation. Our office is deciding whether and how to take action in these individual cases.
Several courts have taken their own actions to address this situation. The Cuyahoga County Court of Common Pleas has issued a policy on foreclosure affidavits, recommending that its judges issue an order requiring a lender who submitted a robo-signed affidavit, pre or post-judgment, to show cause why the case should not be dismissed without prejudice. In the future,counsel for a lender in a foreclosure proceeding must sign an affidavit attesting that counsel has reviewed the file and confirmed with his or her client that the client reviewed the file. The policy, which is currently under review, and template affidavit are available at
http://cp.cuyahogacounty.us/internet/Foreclosure.aspx.
Judge Charles Pater of the Butler County Court of Common Pleas issued an order denying GMAC’s motion to ratify a judgment because “neither the Ohio Civil Rules nor the local rules of this court provide a procedure for or authorize a court to ‘ratify’ a final appealable order” and stating that “the proper course of action would be for GMAC to first file a motion to set aside its judgment and then, once the court grants that motion, to refile its motion for summary judgment with a correctly executed affidavit in support.”
Judge Pater’s order is attached to this letter. As I stated in my October 29 letter, “it is improper for the plaintiff to ask the court to ratify a foreclosure judgment based on a false affidavit after the fact by simply substituting or supplementing what plaintiff now claims is a proper affidavit.” Rather, I believe vacating the judgment is the proper way to handle these cases, as it removes a judgment based ona false affidavit and gives the homeowner an opportunity to contest a new motion for default or summary judgment.
Judge Nancy Russo of the Cuyahoga County Court of Common Pleas has scheduled a hearing requiring a foreclosure plaintiff “to provide the court with proof of integrity of alldocuments submitted.” Our office has intervened in the case, US Bank, NA v. Renfro, Cuyahoga County Court of Common Pleas Case No. CV-10-716322.
Judge John Bender of the Franklin County Court of Common Pleas issued an order in a foreclosure case requiring that foreclosure counsel “personally certify the authenticity and accuracy of all documents submitted in support of judgment.”
Judge Andrew Logan of the Trumbull County Court of Common Pleas sent a letter to foreclosure counsel requiring that affidavits state that the signatory “has personal knowledge of the file and has personally reviewed the documents.”
On the litigation front, my lawsuit against GMAC Mortgage continues. GMAC removed the case to federal court, and the case is now in the United States District Court for the Northern District of Ohio. I also continue to work with the 50-state multi-state investigation of robo-signing, and we are meeting with a number of interested parties to attempt to craft a solution tha tbenefits both homeowners and lenders.
As I have stated before, I urge you to review affidavits in foreclosure cases very closely. Sanctions for filing fraudulent evidence may well be appropriate, and this financial exposure could lead plaintiffs in foreclosure cases to seek negotiated resolutions rather than proceeding to judgment. I will continue to keep you updated on any further developments.
Please feel free to contact me or Susan Choe, my Consumer Protection Section Chief, at 614-466-1305, if we can provide any further information about these issues. Thank you.
Sincerely,
Richard CordrayOhio Attorney GeneralCC:Sarah Lynn, Deputy Chief Counsel, Ohio Attorney General
Susan Choe, Consumer Protection Section Chief, Ohio Attorney General
--------------------------------
Revised Residential Mortgage Foreclosure Affidavit Policy of the Cuyahoga County OH Court of Common Pleas
Revised December 20, 2010
The Magistrates Department has received numerous motions of lenders requesting continuances to ensure their paperwork is proper.” The affidavits in question have been filed in many guises such as affidavits of payment history, variable interest rate affidavits, real party in interest affidavits, affidavits in support of motions for summary judgment, etc.
Revised December 20, 2010
The Magistrates Department has received numerous motions of lenders requesting continuances to ensure their paperwork is proper.” The affidavits in question have been filed in many guises such as affidavits of payment history, variable interest rate affidavits, real party in interest affidavits, affidavits in support of motions for summary judgment, etc.
• In prejudgment cases where a lender has requested a delay in the proceedings to examine evidence it has submitted or otherwise calls into question the validity of the evidence its has submitted, the Committee recommends the entry of an order requiring plaintiff within thirty days to show cause why the case should not be dismissed without prejudice.
• In post judgment cases where the lender has requested a delay in the proceedings to examine evidence it has submitted in support of its judgment or otherwise calls into question the validity of the evidence its has submitted, the Committee recommends the entry of an order requiring plaintiff within thirty days to show cause why the case should not be dismissed and the judgment vacated.
• In any case where the lender seeks to remove the case from the active docket to examine evidence it has submitted, the Committee recommends that the motion be denied as improper under the rules of Civil Procedure and Superintendence. Following denial of the motion, an order as described above should be entered.
• The Committee further recommends the entry of the following as a standing order in all residential mortgage foreclosure cases:
All affidavits filed in residential mortgage foreclosure cases must indicate that the affiant has actual personal knowledge of the file and loan history in question and has personally reviewed the documents, records, or other data relied upon to make the statements contained in the affidavit. Failure to provide appropriate affidavits may result in mandatory personal attendance of an affiant for a hearing, the imposition of sanctions and penalties for perjury or contempt, and dismissal of the case.
Before judgment is entered on any claim for foreclosure and/or money judgment in a residential mortgage foreclosure case, counsel for plaintiff and any other party that asserts a claim for foreclosure or money judgment must file an Affidavit. This Affidavit must:
1) Identify the counsel of record and his or her law firm.
2) Provide that the counsel of record has reviewed the file.
3) Provide that the counsel of record has communicated with a representative of the party seeking foreclosure and/or money judgment and that this representative has affirmed that he or she has personally reviewed the documents, records, or other data related to the case; has reviewed the pleadings and other court filings in the case; and has confirmed both the factual accuracy of the pleadings and court filings and the accuracy of the notarizations contained therein.
4) Provide the full name of the representative described in Item 3 and the date or dates of the communication.
5) Certify that, to the best of the counsel of record’s knowledge, the pleadings and other court filings in support of the claims for foreclosure are complete and accurate in all relevant respects.
6) Acknowledge that counsel of record has a continuing obligation to amend and supplement the Affidavit in light of newly discovered facts following its filing.
7) Be signed and dated by counsel of record.
Failure to submit an appropriate Affidavit on or before the date of trial, the date that a motion for summary judgment is ripe for ruling, or the date of default hearing, whichever is applicable, will result in dismissal of the case and may result in further sanctions.
Standardized Affidavit Forms are posted on the County website. All affidavits submitted pursuant to this order must be in the format of these Standardized Affidavit Forms.
In lieu of this affidavit:
1) In cases where client affidavits have been filed, the affiant or affiants must appear at the hearing of the matter and testify regarding those affidavits. The representative must appear in person and telephonic appearance will not be permitted. If multiple client affidavits are filed in the case and are executed by more more that one affiant, each affiant must appear at the hearing of the matter
2) In cases were no client affidavits have been filed, an officer of the party seeking foreclosure must appear at the hearing of the matter and testify in support of the allegations of the complaint and contents of other documents or court filings. The officer of the party seeking foreclosure must appear in person and telephonic appearance will not be permitted.
3) In cases where no hearing is scheduled before the entry of judgment (such as some summary judgment cases), the party seeking foreclosure must, contemporaneously with the motion for summary judgment, move to schedule a hearing at which the affiant must appear.
4) The affiant or officer of the party seeking foreclosure who appears in court in lieu of the filing of a foreclosure counsel affidavit must appear with the original promissory note, including all endorsements and allonges and a current payment history for the mortgage loan at issue. The affiant or officer of the party seeking foreclosure must be prepared to testify that he or she has personally reviewed the documents, records or other data related to the case, has reviewed the pleadings and other court filings in the case and has confirmed both the factual accuracy of the filings and the accuracy of the notarizations contained in affidavits filed in the case, if any. The affiant or officer of the party seeking foreclosure must be prepared to respond to the questioning of the magistrate or judge presiding over the hearing and the questioning of any other party attending the hearing.
5) If the affiant or officer of the party seeking foreclosure has been previously deposed and has testified under oath regarding the above required information, the filing of the transcript of that deposition will satisfy the requirements of this policy. Failure to file an attorney affidavit or do any of the alternatives to filing an attorney affidavit before the case is ripe for the entry of judgment will result in dismissal of the case.
● All magistrates who do not receive contrary instructions from the judges to whom they are assigned will begin mplementing the above procedures beginning immediately.
Mortensen v. MERS & Bank of America: Alabama Court Orders Homeowner HAMP Case Dismissed With Prejudice
United States District Court, S.D. Alabama, Southern Division, December 23, 2010
Reported by by Moe Bedard, LoanSafe.org on December 29, 2010
The Complaint alleges that defendants treated Mortensen shabbily in connection with his efforts to negotiate a mortgage loan modification for certain residential property that he owns in Foley, Alabama. In particular, plaintiff maintains that defendants instigated foreclosure proceedings after promising him that they would not do so, and even though defendants purportedly lack standing to foreclose.
ROBERT MORTENSEN, Plaintiff,
v.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., et al., Defendants.
BAC HOME LOANS SERVICING, LP, Counterclaim Plaintiff,
v.
ROBERT MORTENSEN, Counterclaim Defendant.
Civil Action No. 09-0787-WS-N.
December 23, 2010.
ORDER
WILLIAM H. STEELE, Chief District Judge.
This matter comes before the Court on defendants’ and counterclaim plaintiff’s Motion for Summary Judgment (doc. 64). The Motion has been briefed and is ripe for disposition.
I. Procedural History.
Plaintiff, Robert Mortensen, initiated this action by filing a Complaint against defendants, Mortgage Electronic Registration Systems, Inc.; Countrywide Home Loans, Inc.; Countrywide Home Loans Servicing, LP; BAC Home Loans Servicing, LP; and Bank of America, N.A.2 The Complaint alleges that defendants treated Mortensen shabbily in connection with his efforts to negotiate a mortgage loan modification for certain residential property that he owns in Foley, Alabama.3 In particular, plaintiff maintains that defendants instigated foreclosure proceedings after promising him that they would not do so, and even though defendants purportedly lack standing to foreclose. Relying on discrete factual allegations regarding his mortgage loan, the attempted modification of same, and defendants’ threatened foreclosure activities, Mortensen’s Complaint reels off a welter of causes of action, including federal statutory claims under the Truth in Lending Act, Real Estate Settlement Procedures Act, and Home Ownership and Equity Protection Act; and state-law claims for breach of implied covenant of good faith and fair dealing, intentional inflection of emotional distress, violation of Alabama Code § 35-10-9, slander of title, and violation of notice of sale requirements under Alabama Code § 35-10-13. The Complaint also recites an undifferentiated laundry list of legal theories under the heading “Affirmative Defenses to the Foreclosure Action.”4 Such “Affirmative Defenses” include “original note not provided,” unconscionability, BAC Servicing not a proper party to foreclose, breach of implied covenant of good faith and fair dealing, breach of contract, unjust enrichment, fraud in the inducement, concealment in negotiations, unclean hands, assumption of risk, and consent.5 Mortensen is and has been represented by counsel throughout this proceeding.
Defendant BAC Home Loans Servicing, LP (“BAC Servicing”), responded by asserting counterclaims against Mortensen for declaratory judgment, equitable relief, breach of contract, and money had and received. (See doc. 4.) In particular, BAC Servicing maintains that Mortensen executed a note in the principal amount of $110,051, executed a mortgage on the property to secure repayment of the note, and then defaulted on the terms of the note, thereby entitling BAC Servicing to foreclose the mortgage and to a money judgment for the owed funds.
II. Pertinent Record Facts.
The underlying facts are straightforward, and largely undisputed.7 Plaintiff is a licensed real estate broker with more than three decades of experience. He is presently employed in a real estate business that he owns with his wife, who is also a seasoned realtor. (Mortensen Dep. (doc. 66, Exh. 4), at 6, 26, 40; Mrs. Mortensen Dep. (doc. 66, Exh. 5), at 7-9, 16.) For the last nine years, Mortensen’s primary residence has been in Miramar, Florida. (Mortensen Dep., at 63-64.) Mortensen and his wife invest in real estate, and presently own six rental investment properties. (Id. at 61, 64-65.) This lawsuit concerns one such parcel, a residential property (the “Property”) located at 16021 Mansion Street in Foley, Alabama.8 The Mortensens have never used the Property as their primary residence, and have always used and intended to use it to generate rental income. (Mrs. Mortensen Dep., at 32-33.) Plaintiff freely characterizes this Property as “Investment Property.” (Doc. 66, Exh. 9, at #4.)
A. The Mortgage Loan.Mortensen purchased the Property from non-party Adams Homes, LLC for $146,735.00 at a closing held on or about December 29, 2006. (Mortensen Dep. at 106, 108; Defendants’ Exh. 9(e).) Mortensen paid more than $37,000 in cash. (Defendants’ Exh. 9(e).) To finance the remainder of the purchase price, he borrowed money from defendant Countrywide Home Loans, Inc. (“Countrywide”) via promissory note, for which he executed a corresponding mortgage. (Mortensen Dep., at 159-61, 163.)
Because much has been made over the identities of the holders of the note and mortgage, the chronology of those instruments is germane to the issues presented on summary judgment. As mentioned, the loan for the Property originated with Countrywide in December 2006. (Gershon Decl. (doc. 66, Exh. 7), ¶ 2.) At that time, Mortensen executed and delivered to Countrywide a promissory note in the principal amount of $110,051.00. (Id., ¶ 3(a).) Contemporaneously, Mortensen granted a mortgage interest in the property to defendant Mortgage Electronic Registration Systems, Inc. (“MERS”), as nominee for Countrywide. (Id., ¶ 3(b).) The Mortgage expressly stated that “MERS is the mortgagee under this Security Instrument” and that MERS was “acting solely as nominee for [Countrywide] and [Countrywide]‘s successors and assigns.” (Id., Exh. B, at 1.)
Both Countrywide and MERS later transferred their respective interests. As to the note, Countrywide transferred its interest to non-party Federal Home Loan Mortgage Corporation (“Freddie Mac”) in January 2007. (Id., ¶ 3(c) & Exh. C.) Defendant Countrywide Home Loans Servicing, LP (“Countrywide Servicing”) serviced the loan on behalf of the lender both before and after the loan was transferred to Freddie Mac. (Id., ¶ 3(d)-(e).) In early 2009, Countrywide Servicing underwent a name change, pursuant to which it became known as defendant BAC Servicing. (Id.)9 The net result of all of the above is that BAC Servicing is the present holder of the note, and possesses the original note at this time. (Id., ¶ 3(f).) As to the mortgage, MERS transferred and assigned all of its right, title and interest in the mortgage to Countrywide Servicing on March 12, 2009. (Hultman Decl. (doc. 66, Exh. 8), ¶ 4 & Exh. B.)10 The “Assignment of Mortgage” document provided that MERS was transferring and assigning its interest in the Mortensen mortgage to Countrywide Servicing and “its successors, transferees and assigns forever.” (Id., Exh. B.) Of course, as already stated, Countrywide Servicing later changed its name to BAC Servicing (i.e., BAC Servicing is Countrywide Servicing, or at least its successor). Thus, BAC Servicing (and none of the other defendants) presently holds the mortgage, in addition to the note.
At the time he entered into this loan transaction, Mortensen understood that Countrywide was the lender, and he knowingly and willingly gave a mortgage interest in the Property in exchange for the loan. (Mortensen Dep., at 159-61, 163.) Mortensen concedes “that there is a valid and legally binding mortgage” on the Property. (Id. at 161.) Mortensen likewise acknowledges that the note has not been paid in full, but that there is an outstanding balance today because he only made payments on it between January 2007 and September 2008. (Id. at 163-65.)
B. Loan Modification and Forbearance Negotiations.
The Property has been rented at various times and vacant at others, and has generated net rental income for Mortensen, even this year. (Mortensen Dep., at 131, 133; Defendants’ Exh. 9(f).)11 Overall, however, when Mortensen looked at the Property “as a businessman” in the wake of what he called “the collapse of the financial system,” he determined that the Property was not affordable, in that rent payments would not cover his expenses. (Id. at 206-09.) At the same time, the Mortensens were in personal financial distress with the decline of the real estate market in the 2006 to 2008 period, and found themselves exploring alternatives for how to meet carry costs on their portfolio of investment properties. (Defendants’ Exh. 9(a).)12
In approximately September 2008, Mortensen contacted Countrywide and indicated that he was “looking for forbearance” on the loan for the Property. (Mortensen Dep., at 184.)13 According to plaintiff, his reason for making the request was that “the money was running out” and that he felt that the available assets to pay that note were “going to run out by the end of 2008.” (Id. at 242-43.) Mortensen was “in a cash-flow crunch,” and knew he was going to be incapable of making payments on that loan within a few months. (Id. at 247-48.) To put it bluntly, when Mortensen first spoke with Countrywide, he “knew that [he] would have to default” because he did not have the money to stay current on his payments. (Id. at 248.)14 In response to Mortensen’s specific forbearance request, the Countrywide representative informed him that “you have to be in default to be helped under any modification program that you’re seeking.” (Id.)15 Mortensen proceeded to withhold payment on the mortgage loan in October and November 2008, only to be informed by Countrywide in November that “we don’t offer forbearance.” (Id. at 188.) Mortensen has never made another accepted payment on this loan obligation, through the present day. (Defendants’ Exh. 9(g), at 6.)
Because Mortensen stopped making payments on the note, Countrywide sent him a Notice of Intent to Accelerate on November 17, 2008, explaining that the loan was in default and that foreclosure proceedings may be initiated if he failed to cure the default by paying $1,507.61 (two months’ payments plus $32.99 in late charges) within 30 days. (Gershon Decl., ¶ 3(h) & Exh. E.) The total principal balance owed at that time was $107,752.65. (Id., ¶ 3(i) & Exh. F; Mortensen Dep., at 175.) The November 2008 notice invited Mortensen to contact Countrywide to discuss alternatives to foreclosure, including loan modification, although it cautioned him that reduction in monthly payments was just “possible” and that modifications are “limited to certain loan types.” (Gershon Decl., Exh. E.)
Mortensen continued to seek mortgage relief after receipt of the Notice of Intent to Accelerate. In that regard, plaintiff acknowledges that BAC Servicing/Countrywide offered him modifications on two occasions in 2009, both of which he declined. (Mortensen Dep., at 202.) The first proposed modification was communicated to Mortensen via letter from BAC Servicing dated June 17, 2009. (Defendants’ Exh. 9(i).) By plaintiff’s own reckoning, that offer would have allowed him to resume payments, get current on the loan in short order, and reduce his monthly payment by $18 per month, even though he had skipped approximately eight payments, all without a large lump-sum payment at the outset for past due sums. (Mortensen Dep., at 202-04, 287-88, 291.) That modification would have increased the principal amount on the loan by $8,755 to cover additional interest, escrow payments, and fees. (Id. at 286.) Mortensen rejected the June 2009 modification offer out of hand even though he now admits that “[l]ooking back on it I like it” and that he wishes he had taken it. (Id. at 294.)16 In his words, Mortensen “made a mistake” by turning it down. (Id. at 306.)
BAC Servicing communicated a second proposed modification to Mortensen via letter dated October 19, 2009. (Defendants’ Exh. 9(h).) This proposal would have increased his monthly payments by approximately $100. (Mortensen Dep., at 205, 299.) Of course, a higher payment amount would be expected, given the accrual of additional interest and fees in the interim. Because of Mortensen’s ongoing failure to resume payments on his defaulted loan, he was digging the hole deeper and deeper. (Id. at 299.) Again, however, BAC Servicing required that Mortensen make only a single monthly payment to get the note back on track under the modification. (Id.) Mortensen was unhappy with this proposal because it raised his monthly payments rather than lowering them, but BAC Servicing informed him that it was the best they could do. (Id. at 300-01.) Plaintiff rejected the October 2009 loan modification offer, as well.
Just days after he rejected the second modification offer, Mortensen received a letter dated November 2, 2009 from BAC Servicing concerning the Property. (Mortensen Dep., at 314.)17 This letter was obviously incorrect on its face. The November 2009 letter recited what it called a “breakdown of the payments and fees that are due on the above-mentioned loan,” but listed only two missed payments for August and September 2006. (Defendants’ Exh. 9(c).) Of course, Countrywide had not issued the loan until December 2006, and Mortensen well knew that he had missed far more than two payments because he had not paid a dime since September 2008. (Mortensen Dep., at 321, 324.)
Despite being cognizant of this error, Mortensen endeavored to manipulate it to his advantage by unilaterally deeming the letter a modification offer under which a small payment would bring the entire loan current. (Id. at 316-17.) He “just assumed” such a meaning in the absence of any confirmatory language, without having any conversations with BAC Servicing. (Id. at 318, 322.) On that basis, Mortensen hastily fired off a payment of $3,285.74 to BAC Servicing on November 18, 2009. (Id. at 314-17; Defendants’ Exh. 9(c).)18 He did so even though he knew that the November 2 letter said nothing about escrow, loan balances, term of the new loan, or the like. (Id. at 319-21.) He knew the letter did not use the terms “modification” or “forbearance.” (Id. at 318.) Yet he just “assumed” that this was a brand-new modification offer under which the overwhelming majority of his missed payments, accrued interest and fees would simply evaporate. Mortensen did not execute any documents or sign any agreements in connection with the November 2009 letter, even though all previous modification offers from the lender had been accompanied by written agreements that he would be required to sign and return to manifest his acceptance. (Id. at 333.) BAC Servicing did not accept Mortensen’s payment pursuant to the facially erroneous November 2 letter. (Vargas Dep., at 129.)
At various times during Mortensen’s two-plus year history of nonpayment on the mortgage (even though the Property produced substantial rental income for him during that time period), particularly during 2009, defendants notified him of the potential commencement of foreclosure proceedings. (Defendants’ Exhs. 9(j), 9(k), 9(m), 9(n).) However, there has never been a foreclosure sale on the Property. (Mortensen Dep., at 282.) There is zero evidence that any such foreclosure sale is presently scheduled or imminent at this time.19
III. Analysis
A. Summary Judgment Standard.
Summary judgment should be granted only if “there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Rule 56(a), Fed.R.Civ.P. The party seeking summary judgment bears “the initial burden to show the district court, by reference to materials on file, that there are no genuine issues of material fact that should be decided at trial.” Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991). Once the moving party has satisfied its responsibility, the burden shifts to the nonmovant to show the existence of a genuine issue of material fact. Id. “If the nonmoving party fails to make `a sufficient showing on an essential element of her case with respect to which she has the burden of proof,’ the moving party is entitled to summary judgment.” Id. (quoting Celotex Corp. v. Catrett, 477 U.S. 317 (1986)) (footnote omitted). “In reviewing whether the nonmoving party has met its burden, the court must stop short of weighing the evidence and making credibility determinations of the truth of the matter. Instead, the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Tipton v. Bergrohr GMBH-Siegen, 965 F.2d 994, 999 (11th Cir. 1992) (internal citations and quotations omitted). “Summary judgment is justified only for those cases devoid of any need for factual determinations.” Offshore Aviation v. Transcon Lines, Inc., 831 F.2d 1013, 1016 (11th Cir. 1987) (citation omitted).
B. Mortensen’s Contract-Based Claims.
In several places in the Complaint, Mortensen asserts that defendants breached their contractual obligations to him. Specifically, he pleads that defendants breached a contractual duty of good faith and fair dealing “by failing to reasonably modify Plaintiffs [sic] mortgage loan.” (Complaint, ¶ 32.) Plaintiff further alleges that defendants breached a contract because “[o]nce plaintiff defaulted, the mortgage lender did not negotiate in good faith, and is requiring plaintiff to sign a mortgage loan modification that will force plaintiff to incur thousands of dollars of penalties and interest.” (Id., ¶ 35.) The Complaint also includes nebulous allegations that any attempt by defendants to foreclose on the Property would run afoul of unspecified actual or implied contractual obligations. (Id., ¶¶ 52-53.)20
On summary judgment, defendants advance a phalanx of legal arguments as to Mortensen’s contract-based claims. First, with respect to plaintiff’s position that defendants breached a contract by “failing to reasonably modify” his loan, defendants argue that they were under no contractual duty to modify Mortensen’s loan at all, much less to proffer a modification that gave him everything he wanted. (Doc. 65, at 11-12.) The record supports only defendants’ view. Neither the mortgage nor the promissory note contains any provisions obligating the lender to modify the loan upon demand. Plaintiff’s deposition testimony does not reveal a single promise by Countrywide, BAC Servicing, or anyone else to modify the loan to his subjective satisfaction. There simply was no such contract. In response, plaintiff states that “[a]n agreement was entered into between Plaintiff and BAC Mortgage Servicing,” that “there are numerous written agreements,” and that “[t]he parties agreed to modify a mortgage.” (Doc. 71, at 3.) Frankly, the Court is at a loss to understand what plaintiff is talking about. Mortensen does not specify what these “agreements” were (whether written or otherwise), much less proffer any record evidence to support their existence. What is plaintiff’s evidence that the parties agreed to modify the mortgage? The Court is aware of none. To be sure, there were negotiations about possible modification terms; however, Mortensen identifies no evidence (and the Court has found none) that defendants ever promised to modify the loan’s terms in conformity to whatever Mortensen’s wishes might be. Plaintiff cannot withstand summary judgment scrutiny using smoke and mirrors in the form of hollow, self-serving generalities. See, e.g., Abrams v. Ciba Specialty Chemicals Corp., 663 F.Supp.2d 1220, 1229 (S.D. Ala. 2009) (“It is not enough on summary judgment for a non-movant simply to bandy about nebulous what-ifs and abstract theories untethered to record evidence.”).
Next, defendants assert that Mortensen’s contract-based claims pertaining to the loan modification fail under Alabama’s Statute of Frauds. Under Alabama law, “[e]very agreement or commitment to lend money, delay or forbear repayment thereof or to modify the provisions of such an agreement or commitment” is void “unless such agreement or some note or memorandum thereof expressing the consideration is in writing and subscribed by the party.” Ala. Code 8-9-2(7). To satisfy the Statute of Frauds, a writing memorializing such a modification or forbearance must “state the full terms of the agreement to forbear, the mutuality of the agreement, and the intention of the parties.” DeVenney v. Hill, 918 So.2d 106, 115 (Ala. 2005). No such written agreement exists that would alter the terms of Mortensen’s mortgage or promissory note obligations; therefore, defendants are correct that plaintiff’s contract claims concerning an alleged agreement to modify the mortgage loan fail as a matter of law for non-conformity with the Statute of Frauds.21
Finally, defendants contend they are entitled to summary judgment on plaintiff’s contract claims concerning the “direct or implied covenant of good faith and fair dealing.” (Complaint, ¶ 52.) The mortgage and note do not state that defendants were required to conform themselves to standards of good faith and fair dealing in negotiating any loan modification; therefore, there is no evidence that defendants bound themselves to any “direct” promise of good faith or fair dealing. As for an “implied” covenant, it is true that “in every contract there exists an implied covenant of good faith and fair dealing.” Shoney’s LLC v. MAC East, LLC, 27 So.3d 1216, 1220 n.5 (Ala. 2009) (citations omitted). This covenant ensures that “neither party shall do anything which will have the effect of destroying or injuring the rights of the other party to receive the fruits of the contract.” Lloyd Noland Foundation, Inc. v. City of Fairfield Healthcare Authority, 837 So.2d 253, 267 (Ala. 2002) (citation omitted) (explaining that parties to contract must fulfill duties and obligations that according to reason and justice they should do to carry out contract’s purpose). As the Court reads the Complaint, however, Mortensen would distort this implied duty beyond recognition by theorizing that defendants were duty-bound to forfeit their own contractual rights by providing plaintiff’s desired loan modification forgiving thousands of dollars in principal payments that Mortensen had skipped, as well as accrued interest and penalties. The Court is aware of no authority, and plaintiff has certainly provided none, that might stretch the concept of an implied covenant of good faith and fair dealing to hold that a lender must relinquish its bargained-for rights to payment in full on a loan. Besides, it defies logic and common sense for Mortensen to accuse defendants of negotiating in bad faith when he acknowledged in his deposition that he “likes” their June 2009 modification proposal and wishes he had accepted it. How could defendants have possibly been negotiating in bad faith when they made a modification offer that Mortensen now regrets having turned down? Plaintiff’s good faith and fair dealing claims fail as a matter of law.22
C. Mortensen’s Fraud-Based Claims
Plaintiff also asserts claims that appear to sound in fraud. Under the heading “Fraud in the Inducement,” the Complaint alleges that “[t]he bank informed Plaintiff he had to be in default in order to negotiate the mortgage loan modification,” and that once he defaulted, defendants imposed “onerous and possibly illegal terms in order to modify his mortgage loan.” (Complaint, ¶ 37.) Under the heading “Concealment in Negotiations,” the Complaint alleges that “Plaintiff was never informed who the true owner of the note is.” (Id., ¶ 38.)
Under Alabama law, “[f]raud in the inducement consists of one party’s misrepresenting a material fact concerning the subject matter of the underlying transaction and the other party’s relying on the misrepresentation to his, her, or its detriment in executing a document or taking a course of action.” Oakwood Mobile Homes, Inc. v. Barger, 773 So.2d 454, 459 (Ala. 2000) (emphasis omitted). A plaintiff alleging fraud in Alabama “must prove four elements: (1) a false representation; (2) that the false representation concerned a material existing fact; (3) that the plaintiff relied upon the false representation; and (4) that the plaintiff was damaged as a proximate result of the reliance.” Billy Barnes Enterprises, Inc. v. Williams, 982 So.2d 494, 499 (Ala. 2007) (citation omitted); see also Cook’s Pest Control, Inc. v. Rebar, 28 So.3d 716, 725 (Ala. 2009) (“To establish a prima facie case of fraudulent misrepresentation, a plaintiff must show: (1) that the representation was false, (2) that it concerned a material fact, (3) that the plaintiff relied on the false representation, and (4) that actual injury resulted from that reliance.”) (citations omitted). Insofar as Mortensen’s theory is one of promissory fraud (that is, a claim “based upon a promise to act or not to act in the future”), he must also show “proof that at the time of the misrepresentation, the defendant had the intention not to perform the act promised” and “proof that the defendant had an intent to deceive.” Southland Bank v. A & A Drywall Supply Co., 21 So.3d 1196, 1210 (Ala. 2008) (citations omitted).
Again, the premise of Mortensen’s fraud-based claims is that defendants deceived him by telling him that “he had to be in default in order to negotiate the mortgage loan modification.” (Complaint, ¶ 37.) On summary judgment, defendants contend that there is evidence of neither false representations nor reliance. The Court agrees. Plaintiff does not show that defendants promised him a generous loan modification if he would simply default, that they assured him he could have whatever mortgage relief he wanted if only he would default, that substantial principal and interest payments would be written off at the lender’s expense if he would just stop paying, or the like. Rather, plaintiff’s own testimony reflects that when he called defendants to request forbearance, they merely informed him that he would have to be in default to be considered for such relief. This was not a false statement. There is not a shred of evidence in the record that Countrywide would or did enter into forbearance agreements in favor of any borrower who was current on his payments.23
As for the reliance element, defendants point to abundant evidence that Mortensen could not have relied on any promises of modification (had such promises been made, which again is not supported by the record in any form or fashion) in his decision to default. The record is crystal clear that Mortensen was in dire financial straits by late 2008 and that his default in the Property’s note was imminent. In fact, Mortensen testified that his reason for contacting Countrywide Servicing was that he knew “the money was running out” and that he felt that the available assets to pay that note were “going to run out by the end of 2008.” (Mortensen Dep., at 242-43.) Mortensen admits that when he had this conversation with Countrywide, he “knew that [he] would have to default” because he did not have the money to remain current on his payments. (Id. at 248.)24 Deposition testimony from Mortensen’s wife and bookkeeper unambiguously reinforce this notion. Simply put, all evidence in the record shows that as of fall 2008, Mortensen was nearly broke and that his default was imminent, irrespective of what defendants did or did not tell him. Because the record unequivocally shows that Mortensen would have defaulted — even in the absence of purportedly fraudulent representations by defendants — because he was simply out of money, he cannot meet the reliance element of his fraud claims as a matter of law.25
Finally, to the extent that Mortensen’s position is that defendants defrauded him by leading him to believe they would work to provide him a satisfactory modification if he would simply default, such assurances (even if they were made) were actually performed by defendants. After all, Mortensen admits that defendants offered him a June 2009 modification proposal that he turned down, even though in looking at it today he likes that proposal and wishes he had accepted it. If defendants made a modification offer following his default that Mortensen now feels is fair and reasonable (as he has admitted), then it is simply incomprehensible how he could assert a fraud claim against them based on any alleged representations that they would reasonably modify his loan on default. Placed in the context of Mortensen’s own deposition testimony, his fraud-based claims cross the borders of absurdity.26
D. Mortensen’s Federal Statutory Claims.
The Complaint also recites a list of federal statutory claims for which Mortensen seeks monetary damages, including causes of action under the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. (“TILA”); the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601 et seq. (“RESPA”); and the Home Ownership and Equity Protection Act, 15 U.S.C. § 1639 (“HOEPA”).
In moving for summary judgment on these statutory causes of action, defendants advance compelling legal arguments. As a threshold matter, defendants maintain that none of these statutes even apply to this loan transaction. It is undisputed that Mortensen purchased the Property exclusively for use as a rental investment property in furtherance of his and his wife’s real estate business. Mortensen never used, and never intended to use, the Property as a primary residence. This fact is significant because defendants identify provisions from all three statutes excluding from their ambit credit transactions made for business purposes. Moreover, case authorities are legion for this proposition.27 In his summary judgment brief, plaintiff simply ignores this inconvenient truth, offering neither authority nor argument to show why TILA, RESPA and HOEPA have any application to a loan transaction undertaken solely to finance Mortensen’s acquisition of investment property and not his principal dwelling. The Court will not endeavor to formulate plaintiff’s legal arguments for him.
Simply put, then, considerable authority demonstrates that plaintiff’s statutory claims are meritless on their face because none of those federal statutes pertain to mortgage loans for investment or rental properties. Moreover, plaintiff, having readily admitted that the mortgage loan in this case related solely to such an investment or rental property, makes no attempt to distinguish these authorities or to establish how TILA, RESPA and HOEPA could possibly apply to this transaction. On that basis, defendants are entitled to entry of judgment in their favor as a matter of law as to each of those federal statutory causes of action.28
E. Mortensen’s Remaining Claims (Outrage/Slander of Title/Alabama Code).
The Complaint also purports to state causes of action under Alabama law for intentional infliction of emotional distress, slander of title, and violation of Alabama statutory foreclosure provisions found at Alabama Code §§ 35-10-9 and 35-10-13.29 Defendants are entitled to judgment as a matter of law on all of these claims.
To recover on a claim of intentional infliction of emotional distress (otherwise known as outrage) under Alabama law, a plaintiff must prove that the defendant’s conduct “(1) was intentional or reckless; (2) was extreme and outrageous; and (3) caused emotional distress so severe that no reasonable person could be expected to endure it.” S.B. v. Saint James School, 959 So.2d 72, 93 (Ala. 2006) (citations omitted). To satisfy the “extreme” element, the plaintiff must prove “conduct so outrageous in character and so extreme in degree as to go beyond all possible bounds of decency, and to be regarded as atrocious and utterly intolerable in a civilized society.” Id. (citations omitted). This tort is limited to “egregious circumstances” and is “only found in rare circumstances.” Hamilton v. City of Jackson, 508 F.Supp.2d 1045, 1060 (S.D. Ala. 2007). Mortensen’s circumstances do not fall into that narrow category for which the tort of outrage is recognized under Alabama law. In particular, defendants’ alleged conduct of telling Mortensen he was not eligible for forbearance unless he was in default, then failing to provide him a loan modification that was as generous as he had hoped after he defaulted, is not “so outrageous in character and so extreme in degree as to go beyond all possible bounds of decency.” Plaintiff does not even attempt to argue otherwise in his summary judgment brief. To do so would have been an exercise in futility. Defendants’ Rule 56 Motion will be granted as to the outrage claim.
Next, the Complaint alleges a “slander of title” claim on the theory that defendants’ actions “have resulted in the risk of Plaintiff wrongfully losing title to his property.” (Complaint, ¶ 57.) Plaintiff has explained that the sole basis of this claim is his contention that defendant BAC Servicing “does not have the right to foreclose on the Mansion St. Property” because it does not hold the note or the mortgage. (Doc. 71, at 5.) Under Alabama law, the elements of a slander of title action are “(1) Ownership of the property by plaintiff; (2) falsity of the words published; (3) malice of defendant in publishing the false statements; (4) publication to some person other than the owner; (5) the publication must be in disparagement of plaintiff’s property or the title thereof; and (6) that special damages were the proximate result of such publication (setting them out in detail).” Folmar v. Empire Fire and Marine Ins. Co., 856 So.2d 807, 809 (Ala. 2003) (citations omitted). On summary judgment, defendants point to the dearth of record evidence of any false statements of fact published by defendants that in any way disparaged his title. After all, Mortensen admits that he granted a mortgage on the Property and that he defaulted on the mortgage, which would give the mortgagee a right to foreclose on the Property. In response, plaintiff’s counsel does not identify any false or disparaging statements but simply asks this Court to accept on faith that “Plaintiff’s research indicates that the claim is proper.” (Doc. 71, at 5.)30 Much more is required for Mortensen to withstand summary judgment on this cause of action.31
The Complaint also recites separate claims for damages under Alabama Code §§ 35-10-9 and 35-10-13 pertaining to the foreclosure sale of the Property. (Complaint, ¶¶ 56, 58.) The former section simply states that real estate sales contrary to the provisions of Title 35, Article 1, “shall be null and void.” Ala. Code § 35-10-9. But no foreclosure sale has occurred in this case, so § 35-10-9 plainly has no application at this time. And the latter statutory provision merely prescribes minimum standards for notice of sale. Plaintiff apparently contends that notices of previous announced foreclosure sales of his property do not comport with those minimum standards. But those foreclosure sales were canceled, and the record is devoid of any evidence or any reason to believe that defendants will not comply with the notice provisions of § 35-10-13 in connection with any future foreclosure sale of the Property. As such, Mortensen’s purported causes of action for damages under these statutes fail on their face.
F. BAC Servicing’s Counterclaims.
In addition to moving for summary judgment on all of Mortensen’s claims against it, defendant BAC Servicing also requests entry of judgment in its favor as to certain Counterclaims. Specifically, BAC Servicing seeks summary judgment on its declaratory judgment cause of action in Count I (in the form of a declaration that the mortgage and note are in default and that BAC Servicing is authorized to foreclose the mortgage), the breach of contract cause of action in Count III (in the form of a monetary judgment on the defaulted note), and the money had and received cause of action in Count IV (also in the form of a monetary judgment on the defaulted note).32
Plaintiff readily admits that he executed the note and the mortgage, that he granted a mortgage interest in the Property to defendant MERS, that MERS later assigned the mortgage to defendant Countrywide Servicing, and that plaintiff stopped making required monthly payments on the mortgage more than two years ago, such that the loan is now in default. The plain terms of the note provide that if Mortensen does “not pay the full amount of each monthly payment on the date it is due, [he] will be in default” and the note holder will have the right to accelerate all sums due under the note after notice. (Defendants’ Exh. 3 (doc. 66-3), ¶ 6(B).) Pursuant to the mortgage, if default is not cured in a timely manner (which it unquestionably was not in this case), “Lender at its option may require immediate payment in full of all sums … and may invoke the power of sale,” pursuant to which the lender is empowered to “sell the Property to the highest bidder at public auction” and apply the proceeds to sums owed under the note (after disbursement of sale expenses). (Defendants’ Exh. 1 (doc. 66-1), ¶ 22.)
On these facts, it cannot be reasonably disputed (and Mortensen does not identify any viable factual or legal basis for disputing) that Mortensen has breached his payment obligations under the promissory note, that the lender is entitled to a money judgment for unpaid principal, interest and other amounts due and owing under the promissory note, and that the foreclosure remedy is expressly authorized in these circumstances by the mortgage document that Mortensen signed. Nonetheless, Mortensen opposes BAC Servicing’s motion for summary judgment primarily because he contends that entity “has not yet shown that it is the holder of the Note and Mortgage.” (Doc. 71, at 5.)33 Plaintiff is wrong.
Everyone agrees that MERS was originally named as mortgagee in the security instrument. Likewise, everyone agrees that MERS assigned its interest in the mortgage to Countrywide Servicing in March 2009. For reasons already set forth herein, the Court finds that the record is absolutely clear that Countrywide Servicing is now known as BAC Servicing, such that BAC Servicing is the present holder and assignee of Mortensen’s mortgage. Moreover, with respect to the note, it is undisputed that the original lender was Countrywide Home Loans, Inc., which subsequently assigned the note to non-party Freddie Mac. Defendants have submitted uncontroverted evidence that, at all times material to this action, that note has been serviced by Countrywide Servicing, which (again) is now known as BAC Servicing, and that BAC Servicing presently holds the note. By calling BAC Servicing the holder of the note, the Court means to say that BAC Servicing physically has the original note in its possession, which again is established by unchallenged record evidence. See Ala. Code § 7-1-201(20) (defining “holder” as “[t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession”). By virtue of its uncontroverted status as holder of the note, BAC Servicing is entitled to enforce it. See Ala. Code § 7-3-301 (“Person entitled to enforce an instrument means (i) the holder of the instrument”).
In short, plaintiff has stubbornly insisted that BAC Servicing “does not have the right to foreclose” because there is no proof that it holds the note and the mortgage, or that Countrywide Servicing became BAC Servicing. In making this argument, without even a scintilla of record evidence to support it, plaintiff has pinned his hopes on a red herring and forced opposing counsel and this Court to embark on a time-wasting fool’s errand to verify what was obvious from the outset, to-wit: That BAC Servicing is entitled to enforce the note and mortgage against Mortensen. That mission having now been completed, the Court overrules all of plaintiff’s objections to the Counterclaims predicated on his factually and legally baseless challenges to BAC Servicing’s standing to enforce the note and mortgage.
In light of the foregoing determinations, the Court concludes that BAC Servicing is entitled to entry of judgment as a matter of law on Counts I, III and IV of its Counterclaims. Mortensen defaulted on his mortgage loan, and BAC Servicing is entitled to enforce rights conferred by Mortensen through the loan origination and mortgage documents, including foreclosure and execution of a judgment for money damages for amounts owed under the mortgage. As for the amount of that money judgment, the summary judgment record establishes that as of October 26, 2010, Mortensen owed the following sums under the note and mortgage: $107,752.65 in unpaid principal, $13,947.24 in accrued interest, and $4,733.08 in accrued fees, escrow payments, and late charges. (Gershon Decl., ¶ 3(i) & Exh. F.) Plaintiff has disputed none of these calculations or amounts in his summary judgment brief. The record further shows that, following October 26, 2010, interest has continued to accrue on the unpaid principal at the daily rate of $17.71 (or $107,752.65 * .06 / 365). (Id.) Again, plaintiff has not challenged the validity of this daily interest accrual rate on the unpaid principal. Calculated through today’s date, then, the total interest owed by Mortensen is $14,956.71 (the original $13,947.24, plus $1,009.47 accrued following October 26, 2010). This yields a total money damages figure, inclusive of all principal, interest, and fees/escrow payments/charges, of $127,442.44. Judgment will be entered in BAC Servicing’s favor in that amount as to Counts III and IV of the Counterclaims.
IV. Conclusion.
For all of the foregoing reasons, it is hereby ordered as follows:
1. Defendants’ and Counterclaim Plaintiff’s Motion for Summary Judgment (doc. 64) is granted;
2. All claims asserted by plaintiff, Robert Mortensen, against all defendants are dismissed with prejudice because there are no genuine issues of material fact and defendants are entitled to judgment in their favor as to all such causes of action;
3. With respect to Count I of counterclaim plaintiff BAC Home Loans Servicing, LP’s Counterclaim, the Court finds and declares that (i) Robert Mortensen is in default under the mortgage and note and that BAC Servicing has properly accelerated all sums due under the note; and (ii) BAC Servicing is authorized to foreclose the mortgage in accordance with the procedures set forth in the mortgage and note;
4. With respect to Counts III and IV of the Counterclaim, judgment will be entered in favor of BAC Servicing and against Mortensen on the breach of contract and money had and received causes of action, in the total amount of $127,442.44; and
5. Count II of the Counterclaim is dismissed as moot.
Because this Order resolves all claims and issues joined in this action, the Clerk of Court is directed to close this file for administrative and statistical purposes.
A separate judgment will be entered.
DONE and ORDERED.
Read the footnotes to the judge's decision HERE.
United States District Court, S.D. Alabama, Southern Division, December 23, 2010
Reported by by Moe Bedard, LoanSafe.org on December 29, 2010
The Complaint alleges that defendants treated Mortensen shabbily in connection with his efforts to negotiate a mortgage loan modification for certain residential property that he owns in Foley, Alabama. In particular, plaintiff maintains that defendants instigated foreclosure proceedings after promising him that they would not do so, and even though defendants purportedly lack standing to foreclose.
ROBERT MORTENSEN, Plaintiff,
v.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., et al., Defendants.
BAC HOME LOANS SERVICING, LP, Counterclaim Plaintiff,
v.
ROBERT MORTENSEN, Counterclaim Defendant.
Civil Action No. 09-0787-WS-N.
December 23, 2010.
ORDER
WILLIAM H. STEELE, Chief District Judge.
This matter comes before the Court on defendants’ and counterclaim plaintiff’s Motion for Summary Judgment (doc. 64). The Motion has been briefed and is ripe for disposition.
I. Procedural History.
Plaintiff, Robert Mortensen, initiated this action by filing a Complaint against defendants, Mortgage Electronic Registration Systems, Inc.; Countrywide Home Loans, Inc.; Countrywide Home Loans Servicing, LP; BAC Home Loans Servicing, LP; and Bank of America, N.A.2 The Complaint alleges that defendants treated Mortensen shabbily in connection with his efforts to negotiate a mortgage loan modification for certain residential property that he owns in Foley, Alabama.3 In particular, plaintiff maintains that defendants instigated foreclosure proceedings after promising him that they would not do so, and even though defendants purportedly lack standing to foreclose. Relying on discrete factual allegations regarding his mortgage loan, the attempted modification of same, and defendants’ threatened foreclosure activities, Mortensen’s Complaint reels off a welter of causes of action, including federal statutory claims under the Truth in Lending Act, Real Estate Settlement Procedures Act, and Home Ownership and Equity Protection Act; and state-law claims for breach of implied covenant of good faith and fair dealing, intentional inflection of emotional distress, violation of Alabama Code § 35-10-9, slander of title, and violation of notice of sale requirements under Alabama Code § 35-10-13. The Complaint also recites an undifferentiated laundry list of legal theories under the heading “Affirmative Defenses to the Foreclosure Action.”4 Such “Affirmative Defenses” include “original note not provided,” unconscionability, BAC Servicing not a proper party to foreclose, breach of implied covenant of good faith and fair dealing, breach of contract, unjust enrichment, fraud in the inducement, concealment in negotiations, unclean hands, assumption of risk, and consent.5 Mortensen is and has been represented by counsel throughout this proceeding.
Defendant BAC Home Loans Servicing, LP (“BAC Servicing”), responded by asserting counterclaims against Mortensen for declaratory judgment, equitable relief, breach of contract, and money had and received. (See doc. 4.) In particular, BAC Servicing maintains that Mortensen executed a note in the principal amount of $110,051, executed a mortgage on the property to secure repayment of the note, and then defaulted on the terms of the note, thereby entitling BAC Servicing to foreclose the mortgage and to a money judgment for the owed funds.
II. Pertinent Record Facts.
The underlying facts are straightforward, and largely undisputed.7 Plaintiff is a licensed real estate broker with more than three decades of experience. He is presently employed in a real estate business that he owns with his wife, who is also a seasoned realtor. (Mortensen Dep. (doc. 66, Exh. 4), at 6, 26, 40; Mrs. Mortensen Dep. (doc. 66, Exh. 5), at 7-9, 16.) For the last nine years, Mortensen’s primary residence has been in Miramar, Florida. (Mortensen Dep., at 63-64.) Mortensen and his wife invest in real estate, and presently own six rental investment properties. (Id. at 61, 64-65.) This lawsuit concerns one such parcel, a residential property (the “Property”) located at 16021 Mansion Street in Foley, Alabama.8 The Mortensens have never used the Property as their primary residence, and have always used and intended to use it to generate rental income. (Mrs. Mortensen Dep., at 32-33.) Plaintiff freely characterizes this Property as “Investment Property.” (Doc. 66, Exh. 9, at #4.)
A. The Mortgage Loan.Mortensen purchased the Property from non-party Adams Homes, LLC for $146,735.00 at a closing held on or about December 29, 2006. (Mortensen Dep. at 106, 108; Defendants’ Exh. 9(e).) Mortensen paid more than $37,000 in cash. (Defendants’ Exh. 9(e).) To finance the remainder of the purchase price, he borrowed money from defendant Countrywide Home Loans, Inc. (“Countrywide”) via promissory note, for which he executed a corresponding mortgage. (Mortensen Dep., at 159-61, 163.)
Because much has been made over the identities of the holders of the note and mortgage, the chronology of those instruments is germane to the issues presented on summary judgment. As mentioned, the loan for the Property originated with Countrywide in December 2006. (Gershon Decl. (doc. 66, Exh. 7), ¶ 2.) At that time, Mortensen executed and delivered to Countrywide a promissory note in the principal amount of $110,051.00. (Id., ¶ 3(a).) Contemporaneously, Mortensen granted a mortgage interest in the property to defendant Mortgage Electronic Registration Systems, Inc. (“MERS”), as nominee for Countrywide. (Id., ¶ 3(b).) The Mortgage expressly stated that “MERS is the mortgagee under this Security Instrument” and that MERS was “acting solely as nominee for [Countrywide] and [Countrywide]‘s successors and assigns.” (Id., Exh. B, at 1.)
Both Countrywide and MERS later transferred their respective interests. As to the note, Countrywide transferred its interest to non-party Federal Home Loan Mortgage Corporation (“Freddie Mac”) in January 2007. (Id., ¶ 3(c) & Exh. C.) Defendant Countrywide Home Loans Servicing, LP (“Countrywide Servicing”) serviced the loan on behalf of the lender both before and after the loan was transferred to Freddie Mac. (Id., ¶ 3(d)-(e).) In early 2009, Countrywide Servicing underwent a name change, pursuant to which it became known as defendant BAC Servicing. (Id.)9 The net result of all of the above is that BAC Servicing is the present holder of the note, and possesses the original note at this time. (Id., ¶ 3(f).) As to the mortgage, MERS transferred and assigned all of its right, title and interest in the mortgage to Countrywide Servicing on March 12, 2009. (Hultman Decl. (doc. 66, Exh. 8), ¶ 4 & Exh. B.)10 The “Assignment of Mortgage” document provided that MERS was transferring and assigning its interest in the Mortensen mortgage to Countrywide Servicing and “its successors, transferees and assigns forever.” (Id., Exh. B.) Of course, as already stated, Countrywide Servicing later changed its name to BAC Servicing (i.e., BAC Servicing is Countrywide Servicing, or at least its successor). Thus, BAC Servicing (and none of the other defendants) presently holds the mortgage, in addition to the note.
At the time he entered into this loan transaction, Mortensen understood that Countrywide was the lender, and he knowingly and willingly gave a mortgage interest in the Property in exchange for the loan. (Mortensen Dep., at 159-61, 163.) Mortensen concedes “that there is a valid and legally binding mortgage” on the Property. (Id. at 161.) Mortensen likewise acknowledges that the note has not been paid in full, but that there is an outstanding balance today because he only made payments on it between January 2007 and September 2008. (Id. at 163-65.)
B. Loan Modification and Forbearance Negotiations.
The Property has been rented at various times and vacant at others, and has generated net rental income for Mortensen, even this year. (Mortensen Dep., at 131, 133; Defendants’ Exh. 9(f).)11 Overall, however, when Mortensen looked at the Property “as a businessman” in the wake of what he called “the collapse of the financial system,” he determined that the Property was not affordable, in that rent payments would not cover his expenses. (Id. at 206-09.) At the same time, the Mortensens were in personal financial distress with the decline of the real estate market in the 2006 to 2008 period, and found themselves exploring alternatives for how to meet carry costs on their portfolio of investment properties. (Defendants’ Exh. 9(a).)12
In approximately September 2008, Mortensen contacted Countrywide and indicated that he was “looking for forbearance” on the loan for the Property. (Mortensen Dep., at 184.)13 According to plaintiff, his reason for making the request was that “the money was running out” and that he felt that the available assets to pay that note were “going to run out by the end of 2008.” (Id. at 242-43.) Mortensen was “in a cash-flow crunch,” and knew he was going to be incapable of making payments on that loan within a few months. (Id. at 247-48.) To put it bluntly, when Mortensen first spoke with Countrywide, he “knew that [he] would have to default” because he did not have the money to stay current on his payments. (Id. at 248.)14 In response to Mortensen’s specific forbearance request, the Countrywide representative informed him that “you have to be in default to be helped under any modification program that you’re seeking.” (Id.)15 Mortensen proceeded to withhold payment on the mortgage loan in October and November 2008, only to be informed by Countrywide in November that “we don’t offer forbearance.” (Id. at 188.) Mortensen has never made another accepted payment on this loan obligation, through the present day. (Defendants’ Exh. 9(g), at 6.)
Because Mortensen stopped making payments on the note, Countrywide sent him a Notice of Intent to Accelerate on November 17, 2008, explaining that the loan was in default and that foreclosure proceedings may be initiated if he failed to cure the default by paying $1,507.61 (two months’ payments plus $32.99 in late charges) within 30 days. (Gershon Decl., ¶ 3(h) & Exh. E.) The total principal balance owed at that time was $107,752.65. (Id., ¶ 3(i) & Exh. F; Mortensen Dep., at 175.) The November 2008 notice invited Mortensen to contact Countrywide to discuss alternatives to foreclosure, including loan modification, although it cautioned him that reduction in monthly payments was just “possible” and that modifications are “limited to certain loan types.” (Gershon Decl., Exh. E.)
Mortensen continued to seek mortgage relief after receipt of the Notice of Intent to Accelerate. In that regard, plaintiff acknowledges that BAC Servicing/Countrywide offered him modifications on two occasions in 2009, both of which he declined. (Mortensen Dep., at 202.) The first proposed modification was communicated to Mortensen via letter from BAC Servicing dated June 17, 2009. (Defendants’ Exh. 9(i).) By plaintiff’s own reckoning, that offer would have allowed him to resume payments, get current on the loan in short order, and reduce his monthly payment by $18 per month, even though he had skipped approximately eight payments, all without a large lump-sum payment at the outset for past due sums. (Mortensen Dep., at 202-04, 287-88, 291.) That modification would have increased the principal amount on the loan by $8,755 to cover additional interest, escrow payments, and fees. (Id. at 286.) Mortensen rejected the June 2009 modification offer out of hand even though he now admits that “[l]ooking back on it I like it” and that he wishes he had taken it. (Id. at 294.)16 In his words, Mortensen “made a mistake” by turning it down. (Id. at 306.)
BAC Servicing communicated a second proposed modification to Mortensen via letter dated October 19, 2009. (Defendants’ Exh. 9(h).) This proposal would have increased his monthly payments by approximately $100. (Mortensen Dep., at 205, 299.) Of course, a higher payment amount would be expected, given the accrual of additional interest and fees in the interim. Because of Mortensen’s ongoing failure to resume payments on his defaulted loan, he was digging the hole deeper and deeper. (Id. at 299.) Again, however, BAC Servicing required that Mortensen make only a single monthly payment to get the note back on track under the modification. (Id.) Mortensen was unhappy with this proposal because it raised his monthly payments rather than lowering them, but BAC Servicing informed him that it was the best they could do. (Id. at 300-01.) Plaintiff rejected the October 2009 loan modification offer, as well.
Just days after he rejected the second modification offer, Mortensen received a letter dated November 2, 2009 from BAC Servicing concerning the Property. (Mortensen Dep., at 314.)17 This letter was obviously incorrect on its face. The November 2009 letter recited what it called a “breakdown of the payments and fees that are due on the above-mentioned loan,” but listed only two missed payments for August and September 2006. (Defendants’ Exh. 9(c).) Of course, Countrywide had not issued the loan until December 2006, and Mortensen well knew that he had missed far more than two payments because he had not paid a dime since September 2008. (Mortensen Dep., at 321, 324.)
Despite being cognizant of this error, Mortensen endeavored to manipulate it to his advantage by unilaterally deeming the letter a modification offer under which a small payment would bring the entire loan current. (Id. at 316-17.) He “just assumed” such a meaning in the absence of any confirmatory language, without having any conversations with BAC Servicing. (Id. at 318, 322.) On that basis, Mortensen hastily fired off a payment of $3,285.74 to BAC Servicing on November 18, 2009. (Id. at 314-17; Defendants’ Exh. 9(c).)18 He did so even though he knew that the November 2 letter said nothing about escrow, loan balances, term of the new loan, or the like. (Id. at 319-21.) He knew the letter did not use the terms “modification” or “forbearance.” (Id. at 318.) Yet he just “assumed” that this was a brand-new modification offer under which the overwhelming majority of his missed payments, accrued interest and fees would simply evaporate. Mortensen did not execute any documents or sign any agreements in connection with the November 2009 letter, even though all previous modification offers from the lender had been accompanied by written agreements that he would be required to sign and return to manifest his acceptance. (Id. at 333.) BAC Servicing did not accept Mortensen’s payment pursuant to the facially erroneous November 2 letter. (Vargas Dep., at 129.)
At various times during Mortensen’s two-plus year history of nonpayment on the mortgage (even though the Property produced substantial rental income for him during that time period), particularly during 2009, defendants notified him of the potential commencement of foreclosure proceedings. (Defendants’ Exhs. 9(j), 9(k), 9(m), 9(n).) However, there has never been a foreclosure sale on the Property. (Mortensen Dep., at 282.) There is zero evidence that any such foreclosure sale is presently scheduled or imminent at this time.19
III. Analysis
A. Summary Judgment Standard.
Summary judgment should be granted only if “there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Rule 56(a), Fed.R.Civ.P. The party seeking summary judgment bears “the initial burden to show the district court, by reference to materials on file, that there are no genuine issues of material fact that should be decided at trial.” Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991). Once the moving party has satisfied its responsibility, the burden shifts to the nonmovant to show the existence of a genuine issue of material fact. Id. “If the nonmoving party fails to make `a sufficient showing on an essential element of her case with respect to which she has the burden of proof,’ the moving party is entitled to summary judgment.” Id. (quoting Celotex Corp. v. Catrett, 477 U.S. 317 (1986)) (footnote omitted). “In reviewing whether the nonmoving party has met its burden, the court must stop short of weighing the evidence and making credibility determinations of the truth of the matter. Instead, the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Tipton v. Bergrohr GMBH-Siegen, 965 F.2d 994, 999 (11th Cir. 1992) (internal citations and quotations omitted). “Summary judgment is justified only for those cases devoid of any need for factual determinations.” Offshore Aviation v. Transcon Lines, Inc., 831 F.2d 1013, 1016 (11th Cir. 1987) (citation omitted).
B. Mortensen’s Contract-Based Claims.
In several places in the Complaint, Mortensen asserts that defendants breached their contractual obligations to him. Specifically, he pleads that defendants breached a contractual duty of good faith and fair dealing “by failing to reasonably modify Plaintiffs [sic] mortgage loan.” (Complaint, ¶ 32.) Plaintiff further alleges that defendants breached a contract because “[o]nce plaintiff defaulted, the mortgage lender did not negotiate in good faith, and is requiring plaintiff to sign a mortgage loan modification that will force plaintiff to incur thousands of dollars of penalties and interest.” (Id., ¶ 35.) The Complaint also includes nebulous allegations that any attempt by defendants to foreclose on the Property would run afoul of unspecified actual or implied contractual obligations. (Id., ¶¶ 52-53.)20
On summary judgment, defendants advance a phalanx of legal arguments as to Mortensen’s contract-based claims. First, with respect to plaintiff’s position that defendants breached a contract by “failing to reasonably modify” his loan, defendants argue that they were under no contractual duty to modify Mortensen’s loan at all, much less to proffer a modification that gave him everything he wanted. (Doc. 65, at 11-12.) The record supports only defendants’ view. Neither the mortgage nor the promissory note contains any provisions obligating the lender to modify the loan upon demand. Plaintiff’s deposition testimony does not reveal a single promise by Countrywide, BAC Servicing, or anyone else to modify the loan to his subjective satisfaction. There simply was no such contract. In response, plaintiff states that “[a]n agreement was entered into between Plaintiff and BAC Mortgage Servicing,” that “there are numerous written agreements,” and that “[t]he parties agreed to modify a mortgage.” (Doc. 71, at 3.) Frankly, the Court is at a loss to understand what plaintiff is talking about. Mortensen does not specify what these “agreements” were (whether written or otherwise), much less proffer any record evidence to support their existence. What is plaintiff’s evidence that the parties agreed to modify the mortgage? The Court is aware of none. To be sure, there were negotiations about possible modification terms; however, Mortensen identifies no evidence (and the Court has found none) that defendants ever promised to modify the loan’s terms in conformity to whatever Mortensen’s wishes might be. Plaintiff cannot withstand summary judgment scrutiny using smoke and mirrors in the form of hollow, self-serving generalities. See, e.g., Abrams v. Ciba Specialty Chemicals Corp., 663 F.Supp.2d 1220, 1229 (S.D. Ala. 2009) (“It is not enough on summary judgment for a non-movant simply to bandy about nebulous what-ifs and abstract theories untethered to record evidence.”).
Next, defendants assert that Mortensen’s contract-based claims pertaining to the loan modification fail under Alabama’s Statute of Frauds. Under Alabama law, “[e]very agreement or commitment to lend money, delay or forbear repayment thereof or to modify the provisions of such an agreement or commitment” is void “unless such agreement or some note or memorandum thereof expressing the consideration is in writing and subscribed by the party.” Ala. Code 8-9-2(7). To satisfy the Statute of Frauds, a writing memorializing such a modification or forbearance must “state the full terms of the agreement to forbear, the mutuality of the agreement, and the intention of the parties.” DeVenney v. Hill, 918 So.2d 106, 115 (Ala. 2005). No such written agreement exists that would alter the terms of Mortensen’s mortgage or promissory note obligations; therefore, defendants are correct that plaintiff’s contract claims concerning an alleged agreement to modify the mortgage loan fail as a matter of law for non-conformity with the Statute of Frauds.21
Finally, defendants contend they are entitled to summary judgment on plaintiff’s contract claims concerning the “direct or implied covenant of good faith and fair dealing.” (Complaint, ¶ 52.) The mortgage and note do not state that defendants were required to conform themselves to standards of good faith and fair dealing in negotiating any loan modification; therefore, there is no evidence that defendants bound themselves to any “direct” promise of good faith or fair dealing. As for an “implied” covenant, it is true that “in every contract there exists an implied covenant of good faith and fair dealing.” Shoney’s LLC v. MAC East, LLC, 27 So.3d 1216, 1220 n.5 (Ala. 2009) (citations omitted). This covenant ensures that “neither party shall do anything which will have the effect of destroying or injuring the rights of the other party to receive the fruits of the contract.” Lloyd Noland Foundation, Inc. v. City of Fairfield Healthcare Authority, 837 So.2d 253, 267 (Ala. 2002) (citation omitted) (explaining that parties to contract must fulfill duties and obligations that according to reason and justice they should do to carry out contract’s purpose). As the Court reads the Complaint, however, Mortensen would distort this implied duty beyond recognition by theorizing that defendants were duty-bound to forfeit their own contractual rights by providing plaintiff’s desired loan modification forgiving thousands of dollars in principal payments that Mortensen had skipped, as well as accrued interest and penalties. The Court is aware of no authority, and plaintiff has certainly provided none, that might stretch the concept of an implied covenant of good faith and fair dealing to hold that a lender must relinquish its bargained-for rights to payment in full on a loan. Besides, it defies logic and common sense for Mortensen to accuse defendants of negotiating in bad faith when he acknowledged in his deposition that he “likes” their June 2009 modification proposal and wishes he had accepted it. How could defendants have possibly been negotiating in bad faith when they made a modification offer that Mortensen now regrets having turned down? Plaintiff’s good faith and fair dealing claims fail as a matter of law.22
C. Mortensen’s Fraud-Based Claims
Plaintiff also asserts claims that appear to sound in fraud. Under the heading “Fraud in the Inducement,” the Complaint alleges that “[t]he bank informed Plaintiff he had to be in default in order to negotiate the mortgage loan modification,” and that once he defaulted, defendants imposed “onerous and possibly illegal terms in order to modify his mortgage loan.” (Complaint, ¶ 37.) Under the heading “Concealment in Negotiations,” the Complaint alleges that “Plaintiff was never informed who the true owner of the note is.” (Id., ¶ 38.)
Under Alabama law, “[f]raud in the inducement consists of one party’s misrepresenting a material fact concerning the subject matter of the underlying transaction and the other party’s relying on the misrepresentation to his, her, or its detriment in executing a document or taking a course of action.” Oakwood Mobile Homes, Inc. v. Barger, 773 So.2d 454, 459 (Ala. 2000) (emphasis omitted). A plaintiff alleging fraud in Alabama “must prove four elements: (1) a false representation; (2) that the false representation concerned a material existing fact; (3) that the plaintiff relied upon the false representation; and (4) that the plaintiff was damaged as a proximate result of the reliance.” Billy Barnes Enterprises, Inc. v. Williams, 982 So.2d 494, 499 (Ala. 2007) (citation omitted); see also Cook’s Pest Control, Inc. v. Rebar, 28 So.3d 716, 725 (Ala. 2009) (“To establish a prima facie case of fraudulent misrepresentation, a plaintiff must show: (1) that the representation was false, (2) that it concerned a material fact, (3) that the plaintiff relied on the false representation, and (4) that actual injury resulted from that reliance.”) (citations omitted). Insofar as Mortensen’s theory is one of promissory fraud (that is, a claim “based upon a promise to act or not to act in the future”), he must also show “proof that at the time of the misrepresentation, the defendant had the intention not to perform the act promised” and “proof that the defendant had an intent to deceive.” Southland Bank v. A & A Drywall Supply Co., 21 So.3d 1196, 1210 (Ala. 2008) (citations omitted).
Again, the premise of Mortensen’s fraud-based claims is that defendants deceived him by telling him that “he had to be in default in order to negotiate the mortgage loan modification.” (Complaint, ¶ 37.) On summary judgment, defendants contend that there is evidence of neither false representations nor reliance. The Court agrees. Plaintiff does not show that defendants promised him a generous loan modification if he would simply default, that they assured him he could have whatever mortgage relief he wanted if only he would default, that substantial principal and interest payments would be written off at the lender’s expense if he would just stop paying, or the like. Rather, plaintiff’s own testimony reflects that when he called defendants to request forbearance, they merely informed him that he would have to be in default to be considered for such relief. This was not a false statement. There is not a shred of evidence in the record that Countrywide would or did enter into forbearance agreements in favor of any borrower who was current on his payments.23
As for the reliance element, defendants point to abundant evidence that Mortensen could not have relied on any promises of modification (had such promises been made, which again is not supported by the record in any form or fashion) in his decision to default. The record is crystal clear that Mortensen was in dire financial straits by late 2008 and that his default in the Property’s note was imminent. In fact, Mortensen testified that his reason for contacting Countrywide Servicing was that he knew “the money was running out” and that he felt that the available assets to pay that note were “going to run out by the end of 2008.” (Mortensen Dep., at 242-43.) Mortensen admits that when he had this conversation with Countrywide, he “knew that [he] would have to default” because he did not have the money to remain current on his payments. (Id. at 248.)24 Deposition testimony from Mortensen’s wife and bookkeeper unambiguously reinforce this notion. Simply put, all evidence in the record shows that as of fall 2008, Mortensen was nearly broke and that his default was imminent, irrespective of what defendants did or did not tell him. Because the record unequivocally shows that Mortensen would have defaulted — even in the absence of purportedly fraudulent representations by defendants — because he was simply out of money, he cannot meet the reliance element of his fraud claims as a matter of law.25
Finally, to the extent that Mortensen’s position is that defendants defrauded him by leading him to believe they would work to provide him a satisfactory modification if he would simply default, such assurances (even if they were made) were actually performed by defendants. After all, Mortensen admits that defendants offered him a June 2009 modification proposal that he turned down, even though in looking at it today he likes that proposal and wishes he had accepted it. If defendants made a modification offer following his default that Mortensen now feels is fair and reasonable (as he has admitted), then it is simply incomprehensible how he could assert a fraud claim against them based on any alleged representations that they would reasonably modify his loan on default. Placed in the context of Mortensen’s own deposition testimony, his fraud-based claims cross the borders of absurdity.26
D. Mortensen’s Federal Statutory Claims.
The Complaint also recites a list of federal statutory claims for which Mortensen seeks monetary damages, including causes of action under the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. (“TILA”); the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601 et seq. (“RESPA”); and the Home Ownership and Equity Protection Act, 15 U.S.C. § 1639 (“HOEPA”).
In moving for summary judgment on these statutory causes of action, defendants advance compelling legal arguments. As a threshold matter, defendants maintain that none of these statutes even apply to this loan transaction. It is undisputed that Mortensen purchased the Property exclusively for use as a rental investment property in furtherance of his and his wife’s real estate business. Mortensen never used, and never intended to use, the Property as a primary residence. This fact is significant because defendants identify provisions from all three statutes excluding from their ambit credit transactions made for business purposes. Moreover, case authorities are legion for this proposition.27 In his summary judgment brief, plaintiff simply ignores this inconvenient truth, offering neither authority nor argument to show why TILA, RESPA and HOEPA have any application to a loan transaction undertaken solely to finance Mortensen’s acquisition of investment property and not his principal dwelling. The Court will not endeavor to formulate plaintiff’s legal arguments for him.
Simply put, then, considerable authority demonstrates that plaintiff’s statutory claims are meritless on their face because none of those federal statutes pertain to mortgage loans for investment or rental properties. Moreover, plaintiff, having readily admitted that the mortgage loan in this case related solely to such an investment or rental property, makes no attempt to distinguish these authorities or to establish how TILA, RESPA and HOEPA could possibly apply to this transaction. On that basis, defendants are entitled to entry of judgment in their favor as a matter of law as to each of those federal statutory causes of action.28
E. Mortensen’s Remaining Claims (Outrage/Slander of Title/Alabama Code).
The Complaint also purports to state causes of action under Alabama law for intentional infliction of emotional distress, slander of title, and violation of Alabama statutory foreclosure provisions found at Alabama Code §§ 35-10-9 and 35-10-13.29 Defendants are entitled to judgment as a matter of law on all of these claims.
To recover on a claim of intentional infliction of emotional distress (otherwise known as outrage) under Alabama law, a plaintiff must prove that the defendant’s conduct “(1) was intentional or reckless; (2) was extreme and outrageous; and (3) caused emotional distress so severe that no reasonable person could be expected to endure it.” S.B. v. Saint James School, 959 So.2d 72, 93 (Ala. 2006) (citations omitted). To satisfy the “extreme” element, the plaintiff must prove “conduct so outrageous in character and so extreme in degree as to go beyond all possible bounds of decency, and to be regarded as atrocious and utterly intolerable in a civilized society.” Id. (citations omitted). This tort is limited to “egregious circumstances” and is “only found in rare circumstances.” Hamilton v. City of Jackson, 508 F.Supp.2d 1045, 1060 (S.D. Ala. 2007). Mortensen’s circumstances do not fall into that narrow category for which the tort of outrage is recognized under Alabama law. In particular, defendants’ alleged conduct of telling Mortensen he was not eligible for forbearance unless he was in default, then failing to provide him a loan modification that was as generous as he had hoped after he defaulted, is not “so outrageous in character and so extreme in degree as to go beyond all possible bounds of decency.” Plaintiff does not even attempt to argue otherwise in his summary judgment brief. To do so would have been an exercise in futility. Defendants’ Rule 56 Motion will be granted as to the outrage claim.
Next, the Complaint alleges a “slander of title” claim on the theory that defendants’ actions “have resulted in the risk of Plaintiff wrongfully losing title to his property.” (Complaint, ¶ 57.) Plaintiff has explained that the sole basis of this claim is his contention that defendant BAC Servicing “does not have the right to foreclose on the Mansion St. Property” because it does not hold the note or the mortgage. (Doc. 71, at 5.) Under Alabama law, the elements of a slander of title action are “(1) Ownership of the property by plaintiff; (2) falsity of the words published; (3) malice of defendant in publishing the false statements; (4) publication to some person other than the owner; (5) the publication must be in disparagement of plaintiff’s property or the title thereof; and (6) that special damages were the proximate result of such publication (setting them out in detail).” Folmar v. Empire Fire and Marine Ins. Co., 856 So.2d 807, 809 (Ala. 2003) (citations omitted). On summary judgment, defendants point to the dearth of record evidence of any false statements of fact published by defendants that in any way disparaged his title. After all, Mortensen admits that he granted a mortgage on the Property and that he defaulted on the mortgage, which would give the mortgagee a right to foreclose on the Property. In response, plaintiff’s counsel does not identify any false or disparaging statements but simply asks this Court to accept on faith that “Plaintiff’s research indicates that the claim is proper.” (Doc. 71, at 5.)30 Much more is required for Mortensen to withstand summary judgment on this cause of action.31
The Complaint also recites separate claims for damages under Alabama Code §§ 35-10-9 and 35-10-13 pertaining to the foreclosure sale of the Property. (Complaint, ¶¶ 56, 58.) The former section simply states that real estate sales contrary to the provisions of Title 35, Article 1, “shall be null and void.” Ala. Code § 35-10-9. But no foreclosure sale has occurred in this case, so § 35-10-9 plainly has no application at this time. And the latter statutory provision merely prescribes minimum standards for notice of sale. Plaintiff apparently contends that notices of previous announced foreclosure sales of his property do not comport with those minimum standards. But those foreclosure sales were canceled, and the record is devoid of any evidence or any reason to believe that defendants will not comply with the notice provisions of § 35-10-13 in connection with any future foreclosure sale of the Property. As such, Mortensen’s purported causes of action for damages under these statutes fail on their face.
F. BAC Servicing’s Counterclaims.
In addition to moving for summary judgment on all of Mortensen’s claims against it, defendant BAC Servicing also requests entry of judgment in its favor as to certain Counterclaims. Specifically, BAC Servicing seeks summary judgment on its declaratory judgment cause of action in Count I (in the form of a declaration that the mortgage and note are in default and that BAC Servicing is authorized to foreclose the mortgage), the breach of contract cause of action in Count III (in the form of a monetary judgment on the defaulted note), and the money had and received cause of action in Count IV (also in the form of a monetary judgment on the defaulted note).32
Plaintiff readily admits that he executed the note and the mortgage, that he granted a mortgage interest in the Property to defendant MERS, that MERS later assigned the mortgage to defendant Countrywide Servicing, and that plaintiff stopped making required monthly payments on the mortgage more than two years ago, such that the loan is now in default. The plain terms of the note provide that if Mortensen does “not pay the full amount of each monthly payment on the date it is due, [he] will be in default” and the note holder will have the right to accelerate all sums due under the note after notice. (Defendants’ Exh. 3 (doc. 66-3), ¶ 6(B).) Pursuant to the mortgage, if default is not cured in a timely manner (which it unquestionably was not in this case), “Lender at its option may require immediate payment in full of all sums … and may invoke the power of sale,” pursuant to which the lender is empowered to “sell the Property to the highest bidder at public auction” and apply the proceeds to sums owed under the note (after disbursement of sale expenses). (Defendants’ Exh. 1 (doc. 66-1), ¶ 22.)
On these facts, it cannot be reasonably disputed (and Mortensen does not identify any viable factual or legal basis for disputing) that Mortensen has breached his payment obligations under the promissory note, that the lender is entitled to a money judgment for unpaid principal, interest and other amounts due and owing under the promissory note, and that the foreclosure remedy is expressly authorized in these circumstances by the mortgage document that Mortensen signed. Nonetheless, Mortensen opposes BAC Servicing’s motion for summary judgment primarily because he contends that entity “has not yet shown that it is the holder of the Note and Mortgage.” (Doc. 71, at 5.)33 Plaintiff is wrong.
Everyone agrees that MERS was originally named as mortgagee in the security instrument. Likewise, everyone agrees that MERS assigned its interest in the mortgage to Countrywide Servicing in March 2009. For reasons already set forth herein, the Court finds that the record is absolutely clear that Countrywide Servicing is now known as BAC Servicing, such that BAC Servicing is the present holder and assignee of Mortensen’s mortgage. Moreover, with respect to the note, it is undisputed that the original lender was Countrywide Home Loans, Inc., which subsequently assigned the note to non-party Freddie Mac. Defendants have submitted uncontroverted evidence that, at all times material to this action, that note has been serviced by Countrywide Servicing, which (again) is now known as BAC Servicing, and that BAC Servicing presently holds the note. By calling BAC Servicing the holder of the note, the Court means to say that BAC Servicing physically has the original note in its possession, which again is established by unchallenged record evidence. See Ala. Code § 7-1-201(20) (defining “holder” as “[t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession”). By virtue of its uncontroverted status as holder of the note, BAC Servicing is entitled to enforce it. See Ala. Code § 7-3-301 (“Person entitled to enforce an instrument means (i) the holder of the instrument”).
In short, plaintiff has stubbornly insisted that BAC Servicing “does not have the right to foreclose” because there is no proof that it holds the note and the mortgage, or that Countrywide Servicing became BAC Servicing. In making this argument, without even a scintilla of record evidence to support it, plaintiff has pinned his hopes on a red herring and forced opposing counsel and this Court to embark on a time-wasting fool’s errand to verify what was obvious from the outset, to-wit: That BAC Servicing is entitled to enforce the note and mortgage against Mortensen. That mission having now been completed, the Court overrules all of plaintiff’s objections to the Counterclaims predicated on his factually and legally baseless challenges to BAC Servicing’s standing to enforce the note and mortgage.
In light of the foregoing determinations, the Court concludes that BAC Servicing is entitled to entry of judgment as a matter of law on Counts I, III and IV of its Counterclaims. Mortensen defaulted on his mortgage loan, and BAC Servicing is entitled to enforce rights conferred by Mortensen through the loan origination and mortgage documents, including foreclosure and execution of a judgment for money damages for amounts owed under the mortgage. As for the amount of that money judgment, the summary judgment record establishes that as of October 26, 2010, Mortensen owed the following sums under the note and mortgage: $107,752.65 in unpaid principal, $13,947.24 in accrued interest, and $4,733.08 in accrued fees, escrow payments, and late charges. (Gershon Decl., ¶ 3(i) & Exh. F.) Plaintiff has disputed none of these calculations or amounts in his summary judgment brief. The record further shows that, following October 26, 2010, interest has continued to accrue on the unpaid principal at the daily rate of $17.71 (or $107,752.65 * .06 / 365). (Id.) Again, plaintiff has not challenged the validity of this daily interest accrual rate on the unpaid principal. Calculated through today’s date, then, the total interest owed by Mortensen is $14,956.71 (the original $13,947.24, plus $1,009.47 accrued following October 26, 2010). This yields a total money damages figure, inclusive of all principal, interest, and fees/escrow payments/charges, of $127,442.44. Judgment will be entered in BAC Servicing’s favor in that amount as to Counts III and IV of the Counterclaims.
IV. Conclusion.
For all of the foregoing reasons, it is hereby ordered as follows:
1. Defendants’ and Counterclaim Plaintiff’s Motion for Summary Judgment (doc. 64) is granted;
2. All claims asserted by plaintiff, Robert Mortensen, against all defendants are dismissed with prejudice because there are no genuine issues of material fact and defendants are entitled to judgment in their favor as to all such causes of action;
3. With respect to Count I of counterclaim plaintiff BAC Home Loans Servicing, LP’s Counterclaim, the Court finds and declares that (i) Robert Mortensen is in default under the mortgage and note and that BAC Servicing has properly accelerated all sums due under the note; and (ii) BAC Servicing is authorized to foreclose the mortgage in accordance with the procedures set forth in the mortgage and note;
4. With respect to Counts III and IV of the Counterclaim, judgment will be entered in favor of BAC Servicing and against Mortensen on the breach of contract and money had and received causes of action, in the total amount of $127,442.44; and
5. Count II of the Counterclaim is dismissed as moot.
Because this Order resolves all claims and issues joined in this action, the Clerk of Court is directed to close this file for administrative and statistical purposes.
A separate judgment will be entered.
DONE and ORDERED.
Read the footnotes to the judge's decision HERE.
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