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Real Estate Law Update for Investors and Lenders: Court of Appeals Holds “Admittedly Curious Practice” “Expungement Affidavit” is Not Permitted under Statute.

April 20, 2018 Leave a comment

Happy Friday, all! I took this photo today – the sun is shining and it is starting to feel like spring.

4.20

 

 

In what was already a shocking day for a major lender, Wells Fargo, the Michigan Court of Appeals, in a case of binding precedent, invalidated an efficient tool lenders and investors routinely utilized to undo a foreclosure and revive a mortgage.

I just reviewed a published Court of Appeals decision that came out yesterday that will change the way investors, lenders, and mortgage holders set aside foreclosures.

 

 

The Case: Wilmington Savings Fund Society, et al. v Clare

The Facts are a bit complex, however they can be summarized as follows:

Defendant owned property in Hemlock, Michigan. The original lender held a mortgage on the Property; this mortgage was assigned numerous times. Id. page 2.

In 2010 lender’s assignee (“new lender”) foreclosed on the mortgage. After the redemption period expired, the new lender filed an action to evict the mortgagors/homeowners (“homeowners”).

After trial, the Court found in favor of the homeowners.

the court basically held that the new lender could not provide sufficient evidence that there was a proper chain of title passing on to new lender. Id.

In 2014 new lender’s servicer, Ocwen filed an “Affidavit of Expungement” – which stated that, among other things, the new lender:

agrees to set aside the above Sheriff’s Deed, making it void and of no force or effect, thus reinstating and reviving the above mortgage and Note”  Id.

 

Expungement Affidavit

The Expungement Affidavit has been a common tool used by lenders/mortgage holders  who have foreclosed on mortgages to record an affidavit that would, in theory, and relying on MCL 565.41a, set aside the foreclosure sale, sheriff’s deed, and reinstate the underlying mortgage. See Id, page 6.

The Sixth Circuit Court of Appeals indicated that this is a “admittedly curious practice” other states with similar statutes have not interpreted the statute to allow the affidavit to be used in this way. Id. Citing Wuori v Wilmington Savings Fund Society, 666 Fed Appx 506, 510 (CA 2016).

 

The Court of Appeals agreed and held, as an issue of first impression:

“a Party cannot set aside a foreclosure sale simply through the unilateral filing of an expungement affidavit.” Wilmington, Page 5.

The Court analyzed the statute and held “the plain language of the statute does not include any indication that an affidavit may be used to create a condition. It necessarily follows that a party cannot unilaterally revoke a foreclosure sale by recording an affidavit that is itself the claimed condition.” Id. pg 6. (emphasis in the original).

 

 

Lesson

So, investors and lenders have one less tool at their disposal for what was an efficient method to clear up title if there was a problem with foreclosure.  Since this case is binding precedent, lenders showed take note of this.

 

 

 

 

 

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

www.dwlawpc.com

 

 

 

 

 

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Update on Fintech, Social Entrepreneurship and Special Purpose National Bank Charters for Fintech Companies.

January 19, 2017 1 comment

Last month, Thomas J. Curry, Comptroller of the Currency gave remarks about Special Purpose National Bank Charters for Fintech Companies. You can read Mr. Curry’s remarks here.

Mr. Curry announced that the Comptroller of the Currency (OCC) would move forward with considering applications from financial technology (fintech) companies to become special purpose national banks.

Mr. Curry had this to say, in part:2015-11-26-13-04-02

“Over the past year, no topic in banking and finance has drawn more interest than innovative financial technology, and for good reason. The number of fintech companies in the United States and United Kingdom has ballooned to more than 4,000, and in just five years investment in this sector has grown from $1.8 billion to $24 billion worldwide.

“The OCC published a paper discussing the issues and conditions that
the agency will consider in granting special purpose national bank charters.” You can check that paper out here

Support for Special Purpose National Banks from the Fintech Community.

Today I read an article from CrowdFund Insider: Financial Innovation Now supports the OCC’s charter.

Financial Innovation Now is “a public policy coalition comprised of Amazon, Apple, Google, Intuit and PayPal”

Some heavy hitters.

As reported by Crowdfund Insider, Brian Peters, Executive Director of Financial Innovation Now, stated;

“FIN believes that payments and lending regulation needs streamlining for the modern era. We commend the
OCC’s leadership and vision in driving this regulatory discussion. The OCC has rightly concluded that its approach must evolve to ensure that all American consumers and small businesses are empowered with better access to the benefits of financial technology.”

According to Crowdfund Insider  “Fintech Charter could benefit innovative financial firms that can provide superior services at a lower cost for both consumers and businesses.”

Why Fintech Intrigues me – Purpose Driven.

I’ve previously talked about why fintech is so intriguing.

a. taking a risk doing something different;

b. disrupting business as usual;

c. for the good of others.

That’s social entrepreneurship at its finest.

Given the hot water that big banks continue to find themselves in, it isn’t surprising that a consumer friendly alternative is attractive.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Big Bank Troubles and Trending Towards Community Banking or Fintech?

November 17, 2016 2 comments

“The so-called Sons and Daughters Program was nothing more than bribery by another name,”

-Assistant Attorney General Caldwell.

Today the Department of Justice issued a Press Release – JP Morgan’s Investment Bank in Hong Kong has agreed to pay a $72 Million Penalty for Corrupt Hiring S2015-11-26-13-04-02cheme in China.

Yikes.

A couple of thoughts:

1. The Department of Justice is out there holding Big Banks Accountable. 

Someone has to. It’s not going to be the average consumer, (Wells Fargo appears to be an exception). It’s also not going to be the small business owner taking out a construction loan. Big Banks have the leverage.

2. Local Community Banks are More Appealing Than Big Banks.

Consumers and businesses alike are looking for banks they can trust. From my perspective, as a lawyer and an adviser to business owners – I am only interested in referring my clients to professionals that I trust.

Looking at the news headlines, an average individual or small business owner might conclude that they need a local banking relationship they can trust.

In West Michigan there are a lot of good local community banks. I know good commercial lenders who care about their business clients.

Does this mean that big banks are going away? Nope.

As its been said – some of the largest banks are simply able t
o offer better deals at lower risks.

Regardless, the headlines certainly give you pause to think.

On the Topic of the value of Community Banks…

Last year Thomas J. Curry, Comptroller of the Currency gave remarks before the ABA Mutual Community Bank Conference in Washington D.C. You can read the remarks here

Mr. Curry had this to say in favor of community-based banks:

“These community-based institutions extend credit to farms and families and local businesses in towns and cities across America, and they serve their customers in a way that large banks just can’t match. They are small enough to be able to know their customers, and they work with them in good times and bad. But they are also large enough to provide the services communities need. Mutual savings associations fit firmly in that tradition”

In further support:

“You are free to do what is best for your customers, and that means you provide services and price those services in a way that puts people first – ahead of quarterly profit targets and ahead of investor interests.”

Those are pretty glowing remarks for community-based lenders.

They are certainly attributes I like to see when I am referring any of my business clients to a commercial lender – particularly a start-up entrepreneurial type client.

Mr. Curry also commented that “big banks”:

“offer a variety of important services to companies and consumers, from commercial loans to credit cards, and they present a number of challenges from a supervisory perspective.” 

I’d say the “supervisory challenge” was an understatement.

 

FinTech Poses Challenges to Community Banking…

[UPDATED] Just today, November 18, Mr. Curry gave remarks before the 11th Annual Community Bank Symposium.  You can read the remarks here.

Mr. Curry notes: “One particular issue testing banks’ strategic risk today is the tectonic shift underway regarding innovation and financial technology.

fintechs have emerged to provide financial products and services through alternative platforms and delivery channels. As of 2015, the number of fintech companies in just the United States and United Kingdom alone had reached 4,000.

Mr. Curry notes:

“One factor in the growth of fintech companies is the 85 million millennials entering the financial marketplace who have demonstrated more willingness than earlier generations to change financial service providers or use multiple providers to meet their needs.”

It’s interesting to note the Trend away from Big Banks – and now to Fintech.

Certainly, millennials will continue to play a large role in the growth of fintech companies like Prosper Loans. Coupled this with the fact that millennials are increasingly attracted to business that does social good – fintech appears to have an advantage with millennials.

Questions? Comments? 

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Questions? Comments? 

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Lesson for Businesses: “Words Matter.” Court of Appeals Reverses in favor of Bank of America.

July 8, 2016 2 comments

Words Matter.

Contracts are about risk allocation.

In a transaction, who bears what risk?

Back in April I posted on a recent Supreme Court case – Bank of America v First American Title, et. al.

If you recall, that case involved allegations of mortgage fraud perpetrated against BOA to the tune of millions of dollars.

About that Post…

One of the primary issues the Supreme Court was tasked to consider was the legal significance of the closing protection letter (CPL) signed by the Title Company conducting the closing.

Closing Protection Letters.

As the Supreme Court explained, A CPL “is a contract between the title company and the lender whereby the title insurance company agrees to indemnify the lender for any losses caused by the failure of the title agent to follow the lender’s closing instructions.” Id pg 37.

“[a] lender who also wants the title insurer to be responsible for the agent’s acts in connection with escrow closing activities and services must separately contract with the title insurer for such additional protection by entering into an ‘insured closing letter’ or ‘closing protection letter.” Id.

Its About Risk allocation.

Who should bear the risk of a lender’s losses for failure of a title agent to follow the lender’s closing instructions?

In BOA’s case, it was on the hook for a huge loss and wanted to point to the Title Company and say “you should have caught that fraud, you must indemnify me!”

Words Matter.

The Court made a distinction between the inclusion of the word “in” in the CPL in the prior case, and the “exclusion” of the word “in” in the instant case. In the Court’s determination:

“Although the distinction is slight—the only difference is the word “in”—the distinction is legally significant.” Id. page 43.

“[i]f the word ‘in’ is not included, as is the case here, the phrase ‘handling your funds or documents in connection with . . . closings’ simply defines or identifies the closing agent,effectively broadening the indemnification coverage to any acts of fraud or dishonesty by the closing agent related to a closing.” In light of this distinction, the fraud or dishonesty by Westminster or Patriot need not be tied to their handling of Bank of America’s funds or documents.” Bank of Am. v. First Am. Title Ins. Co.id. at page *44 (Mich. Apr. 13, 2016)

Moving on to the Recent BOA Decision…

A few days ago the Michigan Court of Appeals came out with the a related decision in BOA v Fidelity. You can check out the full opinion of BOA v Fidelity National Title.

Similar circumstances as the BOA v FATC case. BOA had alleged mortgage fraud and Fidelity and its affiliates should indemnify BOA for its losses under the CPL.

Words Matter.

The Court of Appeals relied on the Supreme Court in reversing FNT.

In its decision, the Court cited the Supreme Court decision (profusely).

It relied on the Supreme Court’s determination of the CPL’s language (excluding the word “in” as discussed above).

The Court of Appeals reversed the Trial court’s decision in favor of the FNT. It held that  “there is evidence establishing a genuine issue of material fact concerning whether BOA suffered actual loss arising out of the fraud or dishonesty of FTC in handling BOA’s funds….”

Interestingly, the Court goes in great detail to analyze the evidence that supports the allegations of “fraud or dishonesty” against FNT.

Lesson (You get the theme):

Words matter! As the Supreme Court opined – one word can be “legally significant.” It could determine liability for millions of dollars…

In the recent BOA case BOA was on the hook for its losses, and all of FNT’s attorney fees. That judgment was vacated and sent back for trial, based upon the language of the CPL.

Questions? 

Comments?

e-mail: Jeshua@dwlawpc.com

www.dwlawpc.com

Twitter: @JeshuaTLauka

Deutsche Bank’s Subsidiary Pleads Guilty

April 23, 2015 Leave a comment

More news on big banks….

The DOJ entered into a settlement agreement with Deutsche Bank subsidiary – check out the press release here

The headline is: “DEUTSCHE BANK’S LONDON SUBSIDIARY AGREES TO PLEAD GUILTY IN CONNECTION WITH LONG-RUNNING MANIPULATION OF LIBOR”

Yeah, that is pretty bad news…

According to the Press Release: “Deutsche Bank entered into a deferred prosecution agreement today and admitted its role in manipulating LIBOR and participating in a price-fixing conspiracy in violation of the Sherman Act by rigging Yen LIBOR contributions with other banks”

deferred prosecution” =  at the of this, so long as the settlement is abided by, Deutsche Bank isn’t going to have a criminal record.  How you throw a bank in jail for violating a settlement agreement is beyond me…

It appears that the Bank will be paying approx $775 Million in penalties.

In other news: 

The Consumer Financial Protection Bureau, “the agency established by the 2010 overhaul of financial regulations to enforce laws aimed at protecting consumers from unfair or illegal practices by banks, mortgage lenders and other financial services providers”  looks to having its budget restricted some. Check out the article here

By the  numbers:

The measure would cap the agency’s budget at $655 million in 2020 and $720 million in 2025. This year’s budget is $582 million.”

That’s a lot of money spent on holding banks accountable.

Question:

Is it working? 

If the DOJ keeps assessing large fines and slapping banks with criminal records, maybe…

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

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What’s Going on With Banks? Part II: Comptroller on Currency and Community-Based Banks

March 23, 2015 Leave a comment

In my March 11th Post on “What’s Going on With Banks” I made an observation: such worldwide bad press on big banks might lead to increased lending at community based banks.

No sooner than I hit “publish” on my post did I receive several more news headlines regarding big bank lawsuits.

I get regular  “Enforcement Actions” e-mailed to me, but you can search them yourself here

I also get regular DOJ press releases, that highlighted several more settlements with Banks.

I recently read that the DOJ may be revoking some settlement agreements with banks related to “manipulating the interest rates” – yikes.

At any rate….

Today  Thomas J. Curry, Comptroller of the Currenc,y gave remarks before the  ABA Mutual Community Bank Conference in Washington D.C.  You can read the remarks here

Mr. Curry had this to say in favor of community-based banks:

“These community-based institutions extend credit to farms and families and local businesses in towns and cities across America, and they serve their customers in a way that large banks just can’t match. They are small enough to be able to know their customers, and they work with them in good times and bad. But they are also large enough to provide the services communities need. Mutual savings associations fit firmly in that tradition”

In further support:

“You are free to do what is best for your customers, and that means you provide services and price those services in a way that puts people first – ahead of quarterly profit targets and ahead of investor interests.”

Those are pretty glowing remarks for community-based lenders.

They are certainly attributes I like to see when I am referring any of my business clients to a commercial lender – particularly a start-up entrepreneurial type client.

Mr. Curry also commented that “big banks”:

“offer a variety of important services to companies and consumers, from commercial loans to credit cards, and they present a number of challenges from a supervisory perspective.” 

I’d say the supervisory challenge was an understatement.

Questions? Comments? 

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Banks, Lawsuits, and Settlements: What’s going on with Banks?

March 11, 2015 Leave a comment

This week I noticed several headlines that amount to bad news for big banks.

I will give you my honest gut-reaction when first reading these headlines:

1. CommerceWest Bank Admits Bank Secrecy Act Violation and Reaches $4.9 Million Settlement with Justice Department  (see Link)

Violating the Bank Secrecy Act? Really? That just sounds bad

CommerceWest Bank was also accused of violating other Federal Laws – check out the Complaint here

2. Chase Bank to Pay $50 Million for Mishandling Bankruptcy Docs (see Link)

Mishandling bankruptcy docs? These people are already broke, why not bilk them for extra fees?

The Department of Justice gave some insight on the nature of the allegations:

“It is shocking that the conduct admitted to by Chase in this settlement, including the filing of tens of thousands of documents in court that never had been reviewed by the people who attested to their accuracy, continued as long as it did,” says Stuart F. Delery, acting associate attorney general, in the release. “Such unlawful and abusive banking practices can deprive American homeowners of a fair chance in the bankruptcy system, and we will not tolerate them.” 

3. HSBC Bank to Pay $30 Million to Settle Overdraft Fee Lawsuit (see Link)
Gouging customers. Nice…

Two thoughts after my review of these articles:

1. The Department of Justice is out there holding Big Banks Accountable. 

Someone has to. It’s not going to be the average consumer, with a mortgage loan. It’s also not going to be  the small business owner taking out a construction loan.   Big Banks have the leverage.

2. Local Community Banks are More Appealing Than Big Banks.

Consumers and businesses alike are looking for banks they can trust. From a personal point of view, as a lawyer and an advisor to business owners – I’m looking to make referrals to clients that I trust.

Looking at the news headlines, an average individual  or small business owner might conclude that they need a local banking relationship they can trust.

In West Michigan there are a lot of good local community banks. I know good commercial lenders who care about their business clients.

Does this mean that big banks are going away? Nope.

As its been said – some of the largest banks are simply able to offer better deals at lower risks.

Regardless, the headlines certainly give you pause to think.

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com