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WELLS FARGO BANK, N.A., v. SANDRA A. FORD | NJ APPELLATE DIVISION Reverses Foreclosure Due to Lack of Standing
Today, January 30, 2011, 9 hours ago | Foreclosure FraudGo to full article
Below is a well thought out decision by the SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION.
The court decided that Wells Fargo lacked standing to foreclose.
Some excerpts from the opinion…
(Emphasis added by 4F)
WELLS FARGO BANK, N.A.,
as Trustee,
Plaintiff-Respondent,
v.
SANDRA A. FORD,
Defendant-Appellant.
This appeal presents significant issues regarding the evidence required to establish the standing of an alleged assignee of a mortgage and negotiable note to maintain a foreclosure action.
On March 6, 2005, defendant Sandra A. Ford executed a negotiable note to secure repayment of $403,750 she borrowed from Argent Mortgage Company (Argent) and a mortgage on her residence in Westwood. Defendant alleges that Argent engaged in various predatory and fraudulent acts in connection with this transaction.
Five days later, on March 11, 2005, Argent purportedly assigned the mortgage and note to plaintiff Wells Fargo Bank, N.A. (Wells Fargo). Wells Fargo claims that it acquired the status of a holder in due course as a result of this assignment and therefore is not subject to any of the defenses defendant may have been able to assert against Argent.
Defendant allegedly stopped making payments on the note in the spring of 2006, and on July 14, 2006, Wells Fargo filed this mortgage foreclosure action. In an amended complaint, Wells Fargo asserted that Argent had assigned the mortgage and note to Wells Fargo but that the assignment had not yet been recorded.
Wells Fargo subsequently filed a motion for summary judgment. This motion was supported by a certification of Josh Baxley, who identified himself as “Supervisor of Fidelity National as an attorney in fact for HomEq Servicing Corporation as attorney in fact for [Wells Fargo].” Baxley’s certification stated: “I have knowledge of the amount due Plaintiff for principal, interest and/or other charges pursuant to the mortgage due upon the mortgage made by Sandra A. Ford dated March 6, 2005, given to Argent Mortgage Company, LLC, to secure the sum of $403,750.00.” . Baxley’s certification also alleged that Wells Fargo is “the holder and owner of the said Note/Bond and Mortgage” executed by defendant and that the exhibits.
Attached to his certification, which appear to be a mortgage and note signed by defendant, were “true copies.” Again, the source of this purported knowledge was not indicated. The exhibits attached to the Baxley certification did not include the purported assignment of the mortgage.
The trial court issued a brief oral opinion granting Wells Fargo’s motion for summary judgment. The court observed that defendant “has raised numerous serious disturbing allegations relating to the originator of this loan [Argent], which if true would be a substantial violation of law and substantial violation of her rights.” Nevertheless, the court concluded that those allegations did not provide a defense to Wells Fargo’s foreclosure action because Wells Fargo was a “holder in due course” of the mortgage and note. The court apparently based this conclusion in part on a document attached to Wells Fargo’s reply brief, entitled “Assignment of Mortgage,” which was not referred to in Baxley’s certification or authenticated in any other manner.
Defendant filed a notice of appeal from the judgment.
On appeal, defendant argues that (1) Wells Fargo failed to establish that it is the holder of the negotiable note she gave to Argent and therefore lacks standing to pursue this foreclosure action; (2) even if Wells Fargo is the holder of the note, it failed to establish that it is a holder in due course and therefore, the trial court erred in concluding that Wells Fargo is not subject to the defenses asserted by defendant based on Argent’s alleged predatory and fraudulent acts in connection with execution of the mortgage and note; and (3) even if Wells Fargo is a holder in due course, it still would be subject to certain defenses and statutory claims defendant asserted in her answer and counterclaim.
We conclude that Wells Fargo failed to establish its standing to pursue this foreclosure action. Therefore, the summary judgment in Wells Fargo’s favor must be reversed and the case remanded to the trial court.
The Baxley certification Wells Fargo submitted in support of its motion for summary judgment alleged that “[p]laintiff is still the holder and owner of the said Note/Bond and mortgage,” and a copy of the mortgage and note was attached to the certification. In addition, Wells Fargo submitted a document that purported to be an assignment of the mortgage, which stated that it was an assignment of “the described Mortgage, together with the certain note(s) described
therein with all interest, all liens, and any rights due or to become due thereon.”
If properly authenticated, these documents could be found sufficient to establish that Wells Fargo was a “nonholder in possession of the [note] who has the rights of a holder.”
Baxley’s certification does not allege that he has personal knowledge that Wells Fargo is the holder and owner of the note. In fact, the certification does not give any indication how Baxley obtained this alleged knowledge. The certification also does not indicate the source of Baxley’s alleged knowledge that the attached mortgage and note are “true copies.”
Furthermore, the purported assignment of the mortgage, which an assignee must produce to maintain a foreclosure action, see N.J.S.A. 46:9-9, was not authenticated in any manner; it was simply attached to a reply brief. The trial court should not have considered this document unless it was authenticated by an affidavit or certification based on personal knowledge.
For these reasons, the summary judgment granted to Wells Fargo must be reversed and the case remanded to the trial court because Wells Fargo did not establish its standing to pursue this foreclosure action by competent evidence. On the remand, defendant may conduct appropriate discovery, including taking the deposition of Baxley and the person who purported to assign the mortgage and note to Wells Fargo on behalf of Argent. Our conclusion that the summary judgment must be reversed because Wells Fargo failed to establish its standing to maintain this action makes it unnecessary to address defendant’s other arguments. However, for the guidance of the trial court in the event Wells Fargo is able to establish its standing on remand, we note that even though Wells Fargo could become a “holder” of the note under N.J.S.A. 12A:3-201(b) if Argent indorsed the note to Wells Fargo even at this late date, see UCC Comment 3 to N.J.S.A. 12A:3-203, Wells Fargo would not thereby become a “holder in due course” that could avoid whatever defenses defendant would have to a claim by Argent because Wells Fargo is now aware of those defenses.
Consequently, if Wells Fargo produces an indorsed copy of the note on the remand, the date of that indorsement would be a critical factual issue in determining whether Wells Fargo is a holder in due course. Accordingly, the summary judgment in favor of Wells Fargo is reversed and the case is remanded to the trial court for further proceedings in conformity with this opinion.
11JAN11RLD
1
1 CASE NUMBER: BC 409 444
2 CASE NAME: PAUL RONALD VS. BANK OF AMERICA
3 LOS ANGELES, CA TUESDAY, JANUARY 11, 2011
4 DEPARTMENT 307 HON. WILLIAM F. HIGHBERGER, JUDGE
5 APPEARANCES: (AS NOTED ON TITLE PAGE.)
6 REPORTER: ELSA BANDA LARA, CSR NO. 3226
7 TIME: A.M. SESSION
8 —O—
9
10 THE COURT: ON THE RECORD BC 409444, RONALD AND
11 MANY OTHERS VERSUS BANK OF AMERICA AND OTHERS.
12 STATE YOUR APPEARANCES.
13 MR. SPIVAK: KENIN SPIVAK FROM THE PLAINTIFFS
14 YOUR HONOR.
15 MR. STEIN: GOOD MORNING, YOUR HONOR, MITCHELL
16 STEIN ON BEHALF OF PAUL AND LISA RONALD ET AL., ON
17 BEHALF OF ALL PLAINTIFFS.
18 MR. DAVIS: ERIKSON DAVIS, YOUR HONOR, FOR
19 PLAINTIFFS.
20 MR. TOMASZEWSKI: CHRIS TOMASZEWSKI, YOUR HONOR,
21 FOR PLAINTIFFS.
22 MS. JONES: BRIDGET JONES, YOUR HONOR, FOR
23 PLAINTIFFS.
24 MR. KLEIN: GOOD MORNING, YOUR HONOR. HAPPY NEW
25 YEAR, YOUR HONOR. KEITH KLEIN, BRYAN CAVE ON BEHALF OF
26 DEFENDANTS ACCEPT FOR JAMES AGATE.
27 MR. CEKIRGE: GOOD MORNING, YOUR HONOR, NAFIZ
28 CEKIRGE, FOR ALL DEFENDANTS, EXCEPT FOR AGATE.
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2
1 MR. SHAW: GOOD MORNING, YOUR HONOR, KAMAO SHAW,
2 ON BEHALF OF ALL DEFENDANTS EXCEPT AGATE.
3 THE COURT: I’M GOING TO GIVE YOU A LONG SPOKEN
4 TENTATIVE. I HAVE ANOTHER MATTER AT 11:30 AND HAVE TO
5 BE AT LUNCH MEETING DOWNTOWN. I THINK I’M GOING TO
6 INVITE YOU FOLKS TO COME BACK AT 1:30 TO ARGUE.
7 SINCE THE NEED TO DEAL WITH THE 11:30 AND
8 TO GET TO A LUNCH MEETING IN ANOTHER BUILDING, LIMIT THE
9 TIME PRESENTLY AVAILABLE.
10 THE ISSUES PRESENTED TODAY BY THIS FIRST
11 DEMURRER OR TEST OF THE PLEADING AND BY THEIR RELATED
12 MOTION TO STRIKE, PROVIDE THE FIRST PRACTICAL
13 OPPORTUNITY FOR THE PARTIES TO TRY TO CALIBRATE THE
14 STRENGTH OF THE CASE.
15 BUT, HAVING SAID THAT, BY THE NATURE OF THE
16 DEMURRER AND MOTION TO STRIKE, IT’S NOT A TERRIBLY
17 PRECISE CALIBRATION MECHANISM. AND SO, ONE SHOULD NOT
18 READ TOO MUCH INTO HOW THESE RULINGS TURN OUT.
19 I’M INCLINED TO THINK THAT AT LEAST AS TO
20 SOME CAUSES OF ACTION THE DEMURRER’S GOING TO BE
21 OVERRULED, WHICH IS TO SAY THAT THE PLEADING IS ALREADY
22 ADEQUATE. IT IS CONCEIVABLE THAT THERE WILL BE SOME
23 CAUSES OF ACTION WHERE REPLEADING IS NEEDED. THE ONLY
24 CAUSE OF ACTION THAT I BELIEVE IS GOING TO DIE TODAY, IS
25 ONE THAT BY IMPLICATION THE PLAINTIFFS ARE WILLING TO
26 LET GO, WHICH IS THE 5TH CAUSE OF ACTION. THERE WAS NO
27 WRITTEN OPPOSITION TO THE DEMURRER TO THE 5TH CAUSE OF
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28 ACTION.
3
1 SO, WE’LL LEAVE TODAY WITH AN AWARENESS
2 THAT SOME CAUSES OF ACTION ARE ALREADY GOOD TO GO AND
3 OTHERS ARE GOING TO GET A CHANCE FOR LITTLE REHAB.
4 I THINK THAT WE SHOULD ALLOW FURTHER
5 DISCOVERY TO GO FORWARD, ALTHOUGH I WANT TO REGULATE
6 DISCOVERY DISPUTES. SO I HOPE TO AVOID WORLD WAR III OF
7 DISCOVERY.
8 THE ISSUES PRESENTED BY THE MANY PLAINTIFFS
9 IN THIS CASE AS AGAINST THEIR CURRENT MORTGAGE LENDER
10 AND/OR LOAN SERVICER ARE PART OF A LARGER SOCIOECONOMIC
11 PROBLEM THAT CONFRONT OUR SOCIETY IN CALIFORNIA AND ALL
12 OF THE OTHER STATES IN THIS UNION AN ISSUE OF GREAT
13 CONCERN TO THE U.S. CONGRESS, STATE LEGISLATURE, AND THE
14 BANK REGULATORS, GIVEN THAT IN OUR BANKING SYSTEM THE
15 BANKS ARE INSURED BY THE FULL FAITH AND CREDIT OF THE
16 UNITED STATES GOVERNMENT FOR ALL INTENTS AND PURPOSES.
17 SO THE CONTINUED SOLVENCY OF THE BANKING INDUSTRY AS A
18 WHOLE IS A MATTER OF INTENSE INTEREST TO THE U.S.
19 CONGRESS AS WELL AS THE CENTRAL BANK
20 A PRACTICAL QUESTION THAT CONTINUES TO BE
21 IMPORTANT FOR CASE MANAGEMENT AND POSSIBLE CASE
22 RESOLUTION IS WHAT IS REALLY INTENDED BY PLAINTIFFS AND
23 THEIR COUNSEL IN THIS CASE? SOME OF THE CLAIMS AS
24 PRESSED, IF ACTUALLY SUCCESSFUL, AND TRIED TO A JURY
25 WITH A REQUEST FOR PUNITIVE DAMAGES COULD,
26 THEORETICALLY, IF THE PLAINTIFFS GET THINGS TO GO THE
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27 WAY THEY SAY THEY WANT THEM TO GO, TO LEAD TO SUCH —
28 CAN POTENTIALLY, I’M NOT BY ANY STRETCH OF THE
4
1 IMAGINATION GUARANTEEING THIS OR SAYING IT WILL BE THE
2 MORE LIKELY OR REASONABLE OUTCOME, BUT IF PLAINTIFFS GET
3 THIS CASE WHERE THEY THINK THEY WANT TO PUT THIS CASE
4 THEY ARE PRESUMABLY GOING TO GET A JUDGMENT FOR BILLIONS
5 OF DOLLARS AGAINST BANK OF AMERICA, POTENTIALLY CREATING
6 A PROBLEM OF SUCH GRAVITY THAT ACTION BY THE CENTRAL
7 BANK OR A STATE OR FEDERAL LEGISLATIVE BODY MIGHT
8 THEORETICALLY BE NEEDED.
9 BUT I HAVE A SNEAKY SUSPICION THAT THE REAL
10 AMBITIONS OF WHAT THE CASE IS TO ACCOMPLISH MAY NOT BE
11 TO PUT BANK OF AMERICA INTO RECEIVERSHIP, BUT RATHER, TO
12 ACCOMPLISH SOME MORE MODEST AND PRACTICAL SOLUTION FOR
13 MANY PLAINTIFFS, IN A WAY THAT’S COST EFFECTIVE TO THE
14 PLAINTIFFS, WHICH IS TO SAY SUCH THAT THEY CAN AFFORD
15 THEIR COUNSEL.
16 I HAVEN’T YET SEEN ACTUAL, PRACTICAL
17 FORECLOSURE RELIEF OR DEBT RESTRUCTURING COME THROUGH IN
18 ANY MEANINGFUL FLOW TO INDICATE THAT I CAN WATCH THE
19 PATTERN OF CASE RESOLUTION, BECAUSE WHAT’S BEEN RUMORED
20 ABOUT AS SUPPOSEDLY GOING TO HAPPEN IF ONLY THE
21 PLAINTIFFS WOULD SUBMIT RELEVANT INFORMATION ACCORDING
22 TO THE DESCRIPTION OF DEFENSE COUNSEL, AND IF, ACCORDING
23 TO PLAINTIFFS, THE DEFENDANT WOULD ONLY ACTUALLY RESPOND
24 FROM TIME TO TIME TO REQUESTS FOR ASSISTANCE AS COMPARED
25 TO JUST DANGLING FALSE HOPE.
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11JAN11RLD
26 SO, I MAKE THAT COMMENT BECAUSE, NOT SO
27 MUCH IN CONNECTION WITH ARGUING THE DEMURRER, AS THE
28 LARGER QUESTION OF WHERE THE CASE IS REALLY GOING TO GO,
5
1 IT’S USEFUL TO BEAR IN MIND SORT OF WHAT THEORETICALLY
2 ONE IS TRYING TO ACCOMPLISH WITH THE CASE, AS OPPOSED TO
3 WHAT PRACTICALLY ONE WANTS TO ACCOMPLISH WITH THE CASE.
4 I’M WILLING TO DEAL WITH THE CASE ON ITS
5 THEORETICAL BASIS, JUST AT THE NEAR TERM RIGHT NOW.
6 I’M GOING TO ASK DEFENDANT EVENTUALLY TO
7 GIVE NOTICE OF RULINGS, SO DEFENDANT SHOULD PROBABLY GET
8 A PAD AND PENCIL AND TRACK SOME OF WHAT’S OCCURRING OR
9 AT LEAST BUY A TRANSCRIPT WHEN WE’RE DONE.
10 I’VE NOTED ALREADY THAT THE FIRST RULING I
11 EXPECT TO MAKE IS TO SUSTAIN THE DEMURRER TO 5TH CAUSE
12 OF ACTION WITHOUT LEAVE TO AMEND FOR THE VERY REASON
13 THAT THE DEMURRER IS UNOPPOSED.
14 I MAKE THE FURTHER OBSERVATION TO THE
15 PLAINTIFFS THAT I BELIEVE THAT, HAVING FILED A WRITTEN
16 OPPOSITION TO THE USE OF A DECLARATION OF NON-MONETARY
17 STATUS BY TWO OF THE APPEARING DEFENDANTS, UNLESS THE
18 DEFENDANTS HAVE A DIFFERENT SUGGESTION OF WHAT OUGHT TO
19 HAPPEN NEXT, I WOULD RECOMMEND TO PLAINTIFFS THAT THEY
20 SERIOUSLY CONSIDER FILING A MOTION TO STRIKE THAT
21 RESPONSIVE PLEADING BECAUSE AS I UNDERSTAND THE
22 PLAINTIFF’S VIEW OF THINGS, THESE PARTIES NEED TO ANSWER
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11JAN11RLD
23 OR OTHERWISE BE FULLY INVOLVED IN THE DEMURRER.
24 I WILL TAKE A MOMENT AND DOUBLE CHECK.
25 I’M LOOKING AT THE DEMURRER THAT I HAVE,
26 AND ALTHOUGH THE COUNSEL BRINGING IN THE DEMURRER ARE
27 COUNSEL FOR RECONTRUST AND C.T.C. WHEN I LOOK AT THE
28 DEMURRER AS SUCH, THE DEMURRER HAS NOT BEEN BROUGHT
6
1 FORTH ON BEHALF OF RECONTRUST OR C.T.C..
2 SO THE ONLY RESPONSIVE PLEADING AT THE
3 MOMENT, AS I UNDERSTAND IT, IS THE DECLARATIONS OF
4 NON-MONETARY STATUS. SO IF THE PLAINTIFFS ARE CORRECT
5 THAT BASED ON THE ALLEGATIONS THAT IS NOT A SUFFICIENT
6 RESPONSIVE PLEADING, I WOULD THINK THE PLAINTIFFS WOULD
7 WANT TO MAKE A MOTION TO STRIKE THAT AND ESSENTIALLY
8 FORCE THE APPEARING DEFENDANT RECONTRUST AND C.T.C. REAL
9 ESTATE’S HAND TO EITHER JUSTIFY, IN THE FACE OF A
10 CONTESTED MOTION, THE USE OF THE DECLARATION ON
11 NON-MONETARY STATUS OR ALTERNATIVELY IF YOU PREVAIL AND
12 GET THE ONLY RESPONSIVE PLEADINGS FROM THOSE TWO
13 ENTITIES STRICKEN, THEY PRESUMABLY FIND IN THEIR SELF
14 INTEREST TO INTERPOSE SOME OTHER RESPONSIVE PLEADING
15 SUCH AS DEMURRER OR ANSWER OR MOTION FOR JUDGMENT. BUT
16 THINK AT THE MOMENT WE HAVE AN UNRESOLVED ISSUE
17 PRESENTED BY THAT.
18 I’VE GOT A LOT MORE TALKING, DON’T JUMP UP
19 AND EXPECT TO TALK TO ME YET. YOU ARE NOT DOING
20 YOURSELVES ANY FAVORS. JUST WRITE YOUR NOTES, BE
21 PATIENT AND THINK ABOUT THIS OVER LUNCH.
22 IF YOU HAVE AN AGREED POSITION AFTER LUNCH
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23 ABOUT WHAT’S TO HAPPEN TO THOSE PARTIES, I’D BE PLEASED
24 TO KNOW.
25 PLAINTIFF OBJECTS TO ITEM ONE IN
26 DEFENDANT’S REQUEST FOR JUDICIAL NOTICE.
27 THE BALANCE OF DEFENDANT’S REQUEST FOR
28 JUDICIAL NOTICE IS HELD FORTH AS RECORDED DOCUMENTS AND
7
1 THERE’S NO FORMAL OBJECTION, AS SUCH, TO ITEMS TWO
2 THROUGH 57, BUT THERE IS OBJECTION TO ITEM ONE.
3 BECAUSE THE EVIDENCE CODE ALLOWS FOR THE
4 ADMISSION OF SUMMARIES AND RECAPITULATION OF EVIDENCE,
5 AND BECAUSE THERE’S NO ACTUAL OBJECTION TO THE
6 RECAPITULATIONS ACCURACY, BUT JUST TO THE FACT THAT SOME
7 POOR DRONE AT BANK OF AMERICA OR BRYAN CAVE HAD TO DO
8 IT, I’M INCLINED TO OVERRULE THE OBJECTION TO EXHIBIT 1
9 AND THE REQUEST FOR JUDICIAL NOTICE, BELIEVING THAT AS A
10 MERE RECAP OF OTHERWISE ADMISSIBLE EVIDENCE, HERE
11 ADMISSIBLE BECAUSE IT COMES WITHIN THE AMBIT OF A
12 REQUEST FOR JUDICIAL NOTICE, THAT EXHIBIT 1 IS JUST AS
13 GOOD AS THE REST.
14 BECAUSE I CAN SAY BRIEFLY, AND I WILL JUMP
15 TO THE MOTION TO STRIKE FOR A MOMENT, ALTHOUGH ON THE
16 THE MOTION FOR DEMURRER IS THE THING TO WHICH I’VE GIVEN
17 MORE ATTENTION. BUT, SIMPLY PUT — OH, A DIFFERENT
18 PRELIMINARY COMMENT, BECAUSE WE ARE DEALING IN THE
19 DEMURRER CONTEXT WITH THE ADEQUACY OF A PLEADING, AND
20 ARE GENERALLY SPEAKING NOT IN A POSITION TO LOOK AT
21 FACTS, PARTICULARLY FACTS THAT ARE SUPPLEMENTARY TO OR
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22 IN THE DEFENDANTS’ VIEW ANTITHETICAL TO THE ASSERTIONS
23 MADE IN THE PLEADING, THE FACT THAT CERTAIN CAUSES OF
24 ACTION OR THEORIES ADVANCED TODAY IS NOT INTENDED TO BE
25 MUCH OF A TEST MARKETING OF THE ACTUAL VIABILITY OF THE
26 DEFENDANTS’ ASSERTIONS AS TO CERTAIN CAUSES OF ACTION,
27 AS AND WHEN, BASED ON A MOTION FOR SUMMARY ADJUDICATION
28 OR OTHERWISE, THE DEFENDANT CAN ACTUALLY TEE UP THE
8
1 FACTUAL PREDICATE NEEDED TO FULLY ADVANCE THOSE
2 ARGUMENTS. I COMMENTED EARLIER THAT I DIDN’T THINK
3 TODAY’S PROCEEDINGS WERE NECESSARILY GOING TO BE A
4 TERRIBLY PRECISE CALIBRATION OF THE STRENGTHS AND
5 WEAKNESSES OF THE CASE AND THIS IS, BY WAY OF EXAMPLE,
6 ONE OF THE REASONS WHY TODAY’S EXERCISE WILL BE OF ONLY
7 LIMITED UTILITY IN TRYING TO UNDERSTAND WHAT THIS ALL
8 MEANS IN THE GRAND SCHEME OF THINGS FOR LONG TERM CASE
9 VALUE.
10 NOW, HAVING MADE THAT COMMENT IN PASSING,
11 WHICH IS EQUALLY GERMANE TO SOME OF THE QUESTIONS
12 PRESENTED BY THE MOTION TO STRIKE, I DON’T SEE ANY NEAR
13 TERM UTILITY IN GRANTING THE MOTION TO STRIKE AS TO ANY
14 OF THE POINTS RAISED, BUT THAT’S OBVIOUSLY WITHOUT
15 PREJUDICE TO THE DEFENDANT IN DUE COURSE, THROUGH A
16 MOTION FOR SUMMARY ADJUDICATION OR OTHERWISE, TRYING TO
17 WHITTLE A WAY AT SOME OF THE MANY ASSERTED COMPLEXITIES
18 TO THIS CASE TO TRY TO GET IT DOWN TO THE NUBBING OF
19 WHAT NEEDS TO BE RESOLVED, ASSUMING THAT IT DOES NOT
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20 COMPROMISE IN WHOLE OR IN PART.
21 LET ME TURN NOW TO THE STATUS OF THE 64 OR
22 SO BORROWERS WHICH THE DEMURRING DEFENDANTS ASSERT DID
23 NOT ORIGINATE THEIR LOAN THROUGH COUNTRYWIDE, OR AN
24 AFFILIATE IN THE MARKETPLACE ACKNOWLEDGED TO BE THEN AND
25 THERE AN AFFILIATE OF COUNTRYWIDE.
26 I WOULD HOPE IN MANY WAYS THAT AS A SHOW OF
27 THE WILLINGNESS TO PARE DOWN THE MULTITUDE OF CLAIMS OF
28 THE MULTITUDE OF PLAINTIFFS TO THE STRONGEST AND MOST
9
1 VIABLE CLAIMS, FOR THE SAKE OF LITIGATION EFFICIENCY,
2 THAT PLAINTIFFS THROUGH THEIR COUNSEL WOULD BE WILLING,
3 WHEN THE CIRCUMSTANCES ARE AS OBVIOUS AS THEY SEEM TO BE
4 THROUGH REQUESTS FOR JUDICIAL NOTICE, TO ACCEPT REALITY
5 AND TRIM THEIR SAILS.
6 CALIFORNIA CODE OF CIVIL PROCEDURE SECTION
7 128.7 ATTEMPTS TO PUT ON COUNSEL AND STATE COURT A DUTY
8 AKIN TO RULE 11 IN THE FEDERAL COURTS TO BE SURE THAT AS
9 YOU PRESS FORWARD WITH VARIOUS CLAIMS, FACTUALLY AND
10 LEGALLY, THAT WHEN COUNSEL PUSH ON, THAT IF THEY ARE
11 INFORMED OF NEW FACTS OR CHANGED CIRCUMSTANCES, THAT
12 MAKE WHAT MAY HAVE BEEN IN GOOD FAITH AN APPARENTLY BONA
13 FIDE CLAIM AT THE INCEPTION OF A SUIT, NO LONGER
14 NECESSARILY IT IS SUCH A GOOD CLAIM, THAT COUNSEL
15 ACTUALLY ARE WILLING TO HAVE A FEEDBACK LOOP AND LEARN
16 FROM WHAT THEY READ AND THEY ARE TOLD, AND TO MODIFY
17 THEIR ALLEGATIONS.
18 AND WITH THAT THOUGHT IN MIND, ALTHOUGH IT
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19 DOES ESSENTIALLY REQUIRE RESORT TO THE REQUEST FOR
20 JUDICIAL NOTICE, AND IS NOMINALLY CONTRARY TO WHAT
21 PLAINTIFFS PURPORT TO ASSERT IN BOILERPLATE PLEADING IN
22 THEIR COMPLAINT WHICH IS THAT ALL OF THESE LOANS
23 ORIGINATED IN SOME FASHION WITH COUNTRYWIDE AND/OR ITS
24 CHIEF EXECUTIVE OFFICER MR. MOZILO CONSPIRING BEHIND THE
25 CURTAIN WITH ANYBODY AND EVERYBODY WHO MIGHT HAPPEN TO
26 HAVE BEEN INVOLVED AS TO ANY OF THESE LOANS.
27 THAT DOES NOT NECESSARILY SEEM TO BE A
28 CLAIM THAT CAN BE PRESSED FORWARD AT THIS TIME AS TO
10
1 THESE 64 BORROWERS IN BONA FIDE GOOD FAITH. AND I WOULD
2 HOPE THAT THE PLAINTIFFS WOULD BE PREPARED TO DISMISS
3 THE FRAUD ORIGINATION CLAIMS OR I GUESS ONE MIGHT CALL
4 THEM THE LOAN ORIGINATION CLAIMS, WHICH I UNDERSTAND TO
5 BE COLLECTIVELY THE FIRST THROUGH THIRD CAUSES OF ACTION
6 AS TO THESE 64 BORROWERS, WITHOUT PREJUDICE.
7 THE POINT OF WITHOUT PREJUDICE BEING IF
8 SOME POINT LATER IN THE SEQUENCE ONE WERE TO LEARN
9 HYPOTHETICALLY, THAT WHEN BORROWER HELIDORO,
10 H-E-L-I-O-D-O-R-O, BECERRA, B-E-C-E-R-R-A, ORIGINATED A
11 LOAN IN MARCH OF 2007, WITH AN OUTFIT CALLED ADVANTIX,
12 A-D-V-A-N-T-I-X, LENDING INC., WHICH AT PRESENT SEEMS TO
13 HAVE NOTHING TO DO WITH COUNTRYWIDE; THAT THEY LATER
14 LEARN THAT, INDEED, THEY DID HAVE A CONNECTION DOWN
15 THERE WITH COUNTRYWIDE THAT THEY COULD SEEK LEAVE TO
16 AMEND TO BRING THE CLAIM BACK BEFORE THE COURT.
17 BUT I’M CERTAINLY GIVEN TO INFER THAT IT’S
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18 NOTHING BUT A WILD GUESS AT THE MOMENT THAT COUNTRYWIDE
19 SOMEHOW WAS DOING BUSINESS WITH OR THROUGH ADVANTIX WHEN
20 THEY SEEMED QUITE CAPABLE OF DOING BUSINESS AS
21 COUNTRYWIDE AND RATHER FANCIED THAT THAT WAS A GOOD WAY
22 TO DO BUSINESS AT THE RELEVANT TIME.
23 SO, I GUESS IN THAT REGARD, I’M INCLINED TO
24 SUSTAIN THE DEMURRER OF THE APPEARING DEMURRING
25 DEFENDANTS AS TO THOSE APPROXIMATE 64 LOANS AS TO THE
26 FIRST THREE CAUSES OF ACTION OVER THE PLAINTIFF’S
27 APPARENT BUT UNFORTUNATE OBJECTION.
28 I SAY UNFORTUNATE BECAUSE TO GO BACK AND
11
1 REFER TO ONE’S PRIOR PLEADING AND SAY, WELL, WE WANT TO
2 SAY THAT COUNTRYWIDE MADE THE LOAN, WHEN THE LAND
3 RECORDS SHOW THAT COUNTRYWIDE DIDN’T MAKE THE LOAN,
4 MAKES ONE WONDER ABOUT THE PRACTICALITY OF PLAINTIFF’S
5 COUNSEL AND/OR THEIR AWARENESS OF CCP 128.7. BUT I
6 SUSPECT THAT’S REALLY NOT AN ISSUE.
7 THE SAME QUESTION IN MANY OF THE SAME WAYS
8 ARISES AS TO ANOTHER GROUP OF BORROWERS, NOT SO TIDILY
9 DEFINED BY THE DEMURRER DEFENDANTS, BUT THESE CAN BE
10 REFERRED TO AS THE PERSONS WHOSE LOANS WITH COUNTRYWIDE
11 OR OTHERWISE WERE MADE FOR SOME DATE IN 2005 OR PERHAPS
12 BEFORE JANUARY 1 OF 2005, GIVEN THAT SO FAR THE PLEADING
13 IS DEPICTING FRAUDULENT CONDUCT BY COUNTRYWIDE, ITS
14 OFFICERS, DIRECTORS AND AGENTS FROM SOME DATE IN 2005
15 AND THEREAFTER.
16 THIS IS NOT A VERY TIDILY BROUGHT FORWARD
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17 DEMURRER, TO MY UNDERSTANDING, BECAUSE WE DON’T TO THE
18 BEST OF MY UNDERSTANDING HAVE THE NAMES OF THE BORROWERS
19 WHO ARE SUPPOSED TO BE STRICKEN AT THIS TIME SO NEATLY
20 ARRAYED AS THE 64 BORROWERS WHO APPARENTLY DIDN’T GO
21 THROUGH COUNTRYWIDE FOR LOAN ORIGINATION. BUT THE
22 CONCEPT AGAIN SEEMS TO HAVE SOME VALIDITY.
23 THE SUSPENSION, WHICH IS AN INTERESTING
24 PROCEDURAL DEVICE, AS STYLED BY PLAINTIFF’S COUNSEL,
25 THROUGH THEIR “AMENDMENT TO THIRD AMENDED COMPLAINT”
26 FILED NOVEMBER 22, 2010, IS INTRIGUING AND IN SOME WAYS
27 I DON’T QUARREL WITH WHAT PLAINTIFF’S COUNSEL ARE TRYING
28 TO DO, BUT IN THE NICETIES OF IT, I WOULD BE INCLINED TO
12
1 THINK THAT THIS SHOULD BE AT THIS JUNCTURE, A DISMISSAL
2 OF THE CLAIMS AS TO SUCH PARTIES WITHOUT PREJUDICE.
3 IT CAME TO MY COMMENTS ABOUT MR. BECERRA
4 AND HIS LOAN WITH ADVANTIX, AND ITS APPARENT LACK OF
5 CONNECTION AT THE TIME OF ORIGINATION TO COUNTRYWIDE.
6 BUT THEN AS TO THESE BORROWERS WHO HAVE PRE-2005 LOANS,
7 THE POINT OF DISMISSING THESE CLAIMS WOULD BE WITHOUT
8 PREJUDICE, IS THAT IF LATER EVIDENCE SUPPORTING THAT THE
9 FRAUD WAS EARLIER IN TIME IN 2004 OR EARLIER, THAT A
10 DISMISSAL AT THIS JUNCTURE WITHOUT PREJUDICE WOULD NOT
11 ESTOP THE PLAINTIFFS FROM TRYING TO AMEND THOSE CLAIMS
12 BACK IN AS AND WHEN THE CLAIM CAME FORWARD, WHICH IN MY
13 VIEW IS TIDIER THAN SOMETHING I DON’T THINK I’VE READ
14 ABOUT IN WITKIN OR WEIL AND BROWN, OR THE CALIFORNIA
15 CASES WHICH IS THIS THING DESCRIBED IN THE AMENDMENT THE
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16 THIRD AMENDED COMPLAINT AS A “SUSPENSION” OF THE CLAIM.
17 THE THREE FRAUD CLAIMS ARE COMMON LAW
18 CLAIMS, AND BECAUSE THEY ARE FRAUD CLAIMS, ALBEIT ON
19 BEHALF OF, I GUESS SCORES GOING ON HUNDREDS OF PEOPLE,
20 INVOLVING SCORES OR HUNDREDS OF DIFFERENT LOANS, WE HAVE
21 THE UNAVOIDABLE BURDEN GIVEN THE DESIRE OF THE
22 PLAINTIFFS TO SUE IN CONJUNCTION WITH EACH OTHER AND/OR
23 OTHER COUNSEL TO HAVE AS MANY SEPARATE PLAINTIFFS BEFORE
24 THE COURT IN A SINGLE DOCKET AS HAPPEN TO BE IN THIS
25 DOCKET AT THE MOMENT, NEVERTHELESS, PRESENT A MONUMENTAL
26 PROBLEM OF FULFILLING THE STILL-RESPECTED COMMON LAW
27 REQUIREMENT THAT FRAUD BE PLED WITH PARTICULARITY.
28 IN MY VIEW THAT’S A PROBLEM AS TO THE
13
1 SECOND AND THIRD CAUSES OF ACTION ONLY FOR REASONS I’LL
2 EXPLAIN FURTHER. AND FOR THAT REASON I’M INCLINED TO
3 SUSTAIN THE DEMURRER TO THE SECOND AND THIRD CAUSES OF
4 ACTION WITH LEAVE TO AMEND TO TRY TO BRING FORWARD WITH
5 PARTICULARITY.
6 BUT LET ME STAY WITH THE FIRST CAUSE OF
7 ACTION AT THE MOMENT, WHERE I’M INCLINED TO OVERRULE THE
8 DEMURRER. THE PERLAS, P-E-R-L-A-S, V. GMAC CASE CITED
9 BY THE DEFENDANTS IS VERY INTERESTING. I’M GOING TO
10 TAKE A SECOND TO GET MY HANDS ON THE PHYSICAL DECISION.
11
12 (PAUSE IN THE PROCEEDINGS.)
13
14 THE COURT: THIS IS A DECISION OUT OF DIVISION
15 FIVE OF OUR COURT OF APPEALS IN NORTHERN CALIFORNIA,
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16 JUSTICE SIMMONS, THAT BASICALLY SAID IT WASN’T THE
17 BORROWER’S PREROGATIVE TO BLAME THE LENDER IF THE
18 BORROWER, UNDER WHATEVER CIRCUMSTANCES THAT GAVE RISE TO
19 IT HAPPENING, FILLS OUT A LOAN APPLICATION OVERSTATING
20 THEIR INCOME AND THEREFORE GETS PUT INTO A LOAN THEY
21 CAN’T AFFORD BECAUSE, ESSENTIALLY, THE BORROWER IS
22 SUPPOSED TO PROTECT THE BORROWER ABOUT DISCLOSING THE
23 INCOME AND THE LOAN APPLICATION IS NOT FOR THE BENEFIT
24 OF THE BORROWER, BUT FOR THE BENEFIT OF THE LENDER, AND
25 SO AN OVERSTATEMENT OF THE INCOME IN THE LOAN
26 APPLICATION, MADE PURPORTEDLY BY THE BORROWER TO THE
27 LENDER IS NOT SOMETHING ON WHICH THE BORROWER CAN RELY
28 TO THEN TURN AROUND AND TRY TO BLAME THE LENDER FOR
14
1 BEING PUT IN THE LOAN IN QUESTION.
2 I PERSONALLY AGREE AS A MATTER OF
3 JURISPRUDENCE WITH THE PLAINTIFFS THAT THE PERLAS CASE
4 DOESN’T NECESSARILY SUPPORT THE APPLICATION TO WHICH THE
5 DEMURRING DEFENDANTS WANT TO PUT IT.
6 BUT I ALSO BELIEVE THAT IN ALL OF THE
7 THINGS THAT ARE IMPORTANT ABOUT THIS CASE, AND I
8 MENTIONED EARLIER THAT IN MANY WAYS THE PLAINTIFFS ARE
9 HOPING TO AT LEAST THEORETICALLY CREATE THE POSSIBILITY
10 OF TRULY ASTRONOMICAL EXPOSURE ON THE APPEARING
11 DEFENDANTS, INCLUDING THE FEDERALLY INSURED BANK, BANK
12 OF AMERICA, THAT THE QUESTION OF WHETHER OR NOT PERLAS
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13 SHOULD APPLY, AS ARGUED BY THE DEFENDANTS, PRESENTS A
14 VERY IMPORTANT QUESTION, WHICH SHOULD BE IF POSSIBLE,
15 ADDRESSED BY OUR OWN COURT OF APPEAL THROUGH A WRIT
16 PROCEEDING, CERTIFIED BY MYSEF PURSUANT TO CCP SECTION
17 166.1, AS AS SOON AS A RULING ON TODAY’S DEMURRER IS
18 FINALIZED, TO SEE WHETHER OR NOT, CONTRARY TO
19 JUDGE HIGHBERGER’S VIEW, THE RELEVANT APPELLATE PANEL
20 THAT GETS THIS CASE, MIGHT INDEED THINK THAT THE LARGER
21 LESSONS OF PERLAS IN SOME SENSE SHOULD BE APPLIED TO
22 THIS CASE.
23 PERLAS HAD TO DO WITH REPRESENTATIONS ABOUT
24 A BORROWERS EARNING STREAM. THE PRESENT CASE DOESN’T
25 INVOLVE THE EARNING STREAM OF THE BORROWERS, BUT IT DOES
26 INVOLVE THE VALUE OF THE ASSET TO BE FINANCED.
27 NOW NORMALLY THE BORROWER HAS HIS, HER OR
28 ITS OWN RESPONSIBILITY FOR DETERMINING WHETHER THEY WANT
15
1 TO PAY FOR A PIECE OF REAL ESTATE BEFORE THEY MAKE A
2 CONTRACT, AND/OR DETERMINING HOW MUCH DEBT THEY THINK
3 THEY SHOULD PUT UPON THEIR REAL ESTATE IF THEY ARE DOING
4 A REFINANCE, AND THE WILLINGNESS OF A LENDER TO OVER
5 LEND, IN ESSENCE, DOES NOT NECESSARILY OBVIATE THE
6 RESPONSIBILITY OF THE BORROWER TO MAKE HIS, HER OR ITS
7 OWN INFORMED JUDGMENT OF WHAT THE COLLATERAL IS ACTUALLY
8 WORTH BEFORE THE FINANCING TRANSACTION OCCURS.
9 TIME DIDN’T PERMIT, BUT I WAS GOING TO
10 TRY TO FIND THE LATIN EQUIVALENT OF CAVEAT EMPTOR,
11 CAVEAT EMPTOR IN THEORY IS AN ADMONITION THAT BUYERS
12 SHOULD BE CAREFUL BEFORE THEY BUY AND IF ONE IS BUYING
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13 THE REAL ESTATE IN THE FIRST INSTANCE AND THE FINANCING
14 IS A NEW PURCHASE FINANCING, THE PHRASE PERHAPS HAS
15 QUITE APPROPRIATE APPLICATION HERE.
16 BUT FOR THOSE WHO ARE REFINANCING, BY WAY
17 OF EXAMPLE, IT WOULD BE WHATEVER THE LATIN EQUIVALENT
18 IS, MAYBE IT’S CAVEAT DEBITOR; BUT I HAVEN’T HAD A
19 CHANCE TO CHECK MY LATIN FOR WHAT A BORROWER WOULD BE IN
20 THE LATIN.
21 BUT MY POINT BEING, THE GENERAL PHILOSOPHY
22 OF THE PERLAS CASE MIGHT LEAD AN APPELLATE COURT TO TAKE
23 THE VIEW THAT THE BASIC PREMISE OF THE PLAINTIFFS HERE
24 THAT THEY HAD SOME RIGHT TO RELY UPON DEFENDANT
25 COUNTRYWIDE’S STATEMENTS AND LACK OF STATEMENTS TO COME
26 TO THE CONCLUSION THAT THE PRICING OF RESIDENTIAL REAL
27 ESTATE IN THE UNITED STATES AND VARIOUS MARKETS,
28 PARTICULARLY HERE IN VARIOUS PORTIONS OF CALIFORNIA, WAS
16
1 REASONABLY AND ACCURATELY PRICED, WAS NOT TRUE BUT THEY
2 REASONABLY RELIED UPON IT, NOT REALIZING THAT ACCORDING
3 TO THE PLAINTIFF’S ALLEGATIONS, ROBUST AS THEY ARE,
4 THAT, ESSENTIALLY, COUNTRYWIDE AND ITS EXECUTIVES AND
5 VARIOUS OFFICERS, AGENTS, EMPLOYEES, ETCETERA, WERE
6 ACTUALLY CAPABLE OF KNOWINGLY INFLATING THE VALUES OF
7 RESIDENTIAL REAL ESTATE TO SUCH A DEGREE THAT THEY NO
8 LONGER WERE IN ANY WAY, SHAPE OR FORM FAIR OR ACCURATE
9 VALUATIONS, BUT BECAUSE THE SEVERAL PLAINTIFFS IN THIS
10 DOCKET WERE UNAWARE THAT THIS HAD BEEN UNDERTAKEN
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11 SUCCESSFULLY BY DEFENDANT COUNTRYWIDE, THEY WENT AHEAD
12 AND MADE THESE TRANSACTIONS IN REASONABLE RELIANCE UPON
13 THE ASSUMPTION THAT THE PRICING IN THE MARKET WAS
14 REASONABLE AND HAD NOT BEEN DISTORTED BY THE INTENTIONAL
15 ACTS OF DEFENDANT COUNTRYWIDE AND THE OTHER DEMURRING
16 DEFENDANTS. AND THAT THEY THEREFORE HAVE IN SUCH
17 RELIANCE MADE THESE TRANSACTIONS AND BEEN HARMED.
18 I REFERRED A MOMENT AGO TO THE ROBUSTNESS
19 OF PLAINTIFFS CLAIMS, AND THAT IS A WAY OF SAYING WHAT
20 PLAINTIFF HAS SET OUT TO TRY TO PROVE, PLAINTIFFS HAVE
21 SET OUT TO TRY TO PROVE IS AN AMBITIOUS PROJECT. BUT
22 THE FACT THAT IT’S AMBITIOUS DOES NOT NECESSARILY MEAN
23 IN MY VIEW THAT THE MERE FACT THAT WE HAVE THE PERLAS
24 CASE OUT THERE AUTOMATICALLY SAYS THAT THE PLAINTIFFS
25 AREN’T EVEN ALLOWED TO TRY TO ADVANCE THE PREMISE.
26 BUT, GIVEN THAT THE CURRENT STATE OF OUR
27 POLITICAL AND JURISPRUDENTIAL ECONOMY, I WOULDN’T
28 NECESSARILY DISMISS OUT OF HAND THE POSSIBILITY THAT AN
17
1 APPELLATE COURT EXTENDING THE BASIC SORT OF PHILOSOPHY
2 OF PERLAS VERSUS GMAC MIGHT NOT DETERMINE THAT AS A
3 LEGAL PROPOSITION THEY JUST SIMPLY AREN’T GOING TO
4 COUNTENANCE ONE TRYING TO MAKE A COMMON LAW CLAIM FOR
5 FRAUD AGAINST A DEFENDANT LENDER OR LOAN ORIGINATOR THAT
6 ONE WAS ESSENTIALLY ALL TOO WILLING TO LOAN YOU TOO MUCH
7 MONEY, WHEN YOU IN THEORY SHOULD HAVE BEEN A BIG BOY OR
8 BIG GIRL AND PROTECTED YOURSELF IN FIGURING OUT HOW MUCH
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9 MONEY YOU REALLY SHOULD BORROW, WHEN ACCORDING TO
10 PLAINTIFF’S ALLEGATIONS, ALL OF THE PRICING WAS
11 DISTORTED BY THE FRAUDULENT CONDUCT OF THE DEFENDANT
12 AND, THEREFORE, IN ESSENCE HOW COULD ONE KNOW?
13 THE FIRST CAUSE OF ACTION, I THINK,
14 NOTWITHSTANDING ITS GREAT AMBITION AND THE MULTITUDE OF
15 PLAINTIFFS ACTUALLY SURVIVES THE DEMURRER, BECAUSE ON
16 THE QUESTION OF RELIANCE, THIS IS A FRAUDULENT
17 CONCEALMENT CLAIM. AND THE GENERALIZED ALLEGATIONS
18 APPLICABLE TO EACH AND EVERY PLAINTIFF SUBJECT OBVIOUSLY
19 TO CROSS-EXAMINE AT DEPOSITION AND OTHER FACTUAL
20 TESTING, IS THAT THEY NEVER HEARD ANYTHING TELLING THEM
21 HOW WRONG AND INACCURATE REAL ESTATE PRICING HAD BECOME
22 AS A RESULT OF THE DEFENDANTS’ CONDUCT, WHICH WAS
23 ADVANCED BY THE ALLEGED FRAUDULENT CONCEALMENT. AND SO,
24 I DON’T BELIEVE THERE’S ANYTHING FURTHER ON WHICH
25 PARTICULARITY IS ACTUALLY REQUIRED, BECAUSE EACH OF THE
26 PLAINTIFFS HAVE, ALBEIT IN RELATIVELY SUCCINCT WAY OF
27 EXPRESSING IT THROUGH COUNSEL AND THE PLEADING, SAID,
28 IT’S ECHOING SILENCE.
18
1 SO WHAT ARE THE PARTICULARS OF ECHOING
2 SILENCE? IT WAS ECHOING SILENCE LIKE IN THEIR WHOLE
3 LIFE OR DURING THIS PERIOD OF TIME WHERE WE DON’T NEED A
4 DATE, TIME OR PLACE WHO SPOKE TO THEM. IT’S JUST
5 ECHOING SILENCE.
6 THE SECOND AND THIRD CAUSES OF ACTION
7 AREN’T SO EASY FOR PLAINTIFFS FROM A PLEADING POINT OF
8 VIEW BECAUSE THAT WORKS BACKWARDS FROM INTENTIONAL OR
9 NEGLIGENT MISREPRESENTATIONS.
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10 AND THERE I THINK THE DEFENDANTS ARE RIGHT
11 THAT BECAUSE THESE ARE COMMON LAW CLAIMS, AND BECAUSE WE
12 CONTINUE TO HAVE A HEIGHTENED PLEADING STANDARD, THE
13 DEFENDANT IS ENTITLED BEFORE THESE COMMON LAW CLAIMS GO
14 FORWARD TO HAVE MORE OF THE WHO, WHAT, WHERE, WHEN, THAT
15 PARTICULARIZED PLEADINGS SHOULD REQUIRE OF WHAT, BY WAY
16 OF EXAMPLE, NAMED PLAINTIFF HELIDORO BECERRA HEARD FROM
17 AGENTS OF COUNTRYWIDE, WHICH WAS FRAUDULENT WHEN SO
18 HEARD BY HIM.
19 IT’S INTERESTING AND I THINK SMART FROM A
20 PLEADING AND PROOF POINT OF VIEW FOR PLAINTIFF’S COUNSEL
21 TO MAKE SUBSTANTIAL RELIANCE ON THE MANDATORY FILINGS
22 WITH THE SECURITIES AND EXCHANGE COMMISSION, BY
23 COUNTRYWIDE DOCUMENTS WHICH WOULD HAVE HAD TO BE SIGNED
24 BY ITS OFFICERS AND DIRECTORS AND FILED AS AN OFFICIAL
25 ACT WITH THE GOVERNMENT, WHICH, FROM THE POINT OF VIEW
26 OF CHARGING THE CORPORATION OF THE RESPONSIBILITY FOR
27 THOSE STATEMENTS IS ABOUT AS CLEAR-CUT, SIMPLE AS YOU
28 ARE GOING TO COME TO. IT IS NOT SOME RANDOM ROOKIE
19
1 DRIVER OUT IN THE FIELD ON THE FIRST DAY OF WORK, MAKING
2 STATEMENTS THAT ONE IS TRYING TO ATTRIBUTE BACK TO THE
3 ENTITY FOR PUNITIVE DAMAGES LIABILITY OR OTHERWISE.
4 THESE ARE VERY MUCH THE ACTS OF THE CORPORATION.
5 BUT, I DON’T THINK YOU GET TO A COMMON LAW
6 CLAIM FOR NEGLIGENT OR INTENTIONAL MISREPRESENTATION
7 BASED ON SOME THEORY OF CONSTRUCTIVE NOTICE. YOU GET
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8 THERE BECAUSE FOR RELIANCE YOU HAVE TO, IN THEORY, HAVE
9 HEARD THE STATEMENT OR READ THE STATEMENT BEFORE ONE
10 REASONABLY RELIED UPON IT.
11 AND THERE’S NOT AN ASSERTION AS TO EACH OF
12 THE PLAINTIFFS THAT THEY SPENT THEIR NIGHTS GOING ON THE
13 EDGAR WEBSITE LOOKING FOR 10-K OR 10-Q FILINGS OF
14 COUNTRYWIDE, WHICH WOULD SEEM PASSING CURIOUS IF THAT’S
15 ACTUALLY WHAT HAPPENED. BUT, THEREFORE, THE STATEMENTS
16 MADE, HOWEVER OFFICIALLY THEY MAY BE MADE BY COUNTRYWIDE
17 TO THE SECURITIES AND EXCHANGE COMMISSION OF THE UNITED
18 STATES GOVERNMENT, DO NOT NECESSARILY CONNECT WITH
19 SOMETHING THAT ONE OR MORE OF THESE PLAINTIFFS READ OR
20 BECAME COGNIZANT OF ON WHICH THEY THEREFORE REASONABLY
21 RELIED.
22 SO THAT IS THE BIG GAP IN THE PLAINTIFF’S
23 CURRENT FACT OR ALLEGATIONS FROM MY POINT OF VIEW THAT
24 MEANS THE SECOND AND THIRD CAUSES OF ACTION HAVE TO GO
25 BACK TO THE DRAWING BOARD FOR ELABORATION, SO THAT THE
26 BURDENS OF THE COMMON LAW PLEADING STANDARD ARE MET.
27 AND THERE’S NO DENYING THAT THOSE BURDENS ARE DIFFICULT.
28 THEY ARE DIFFICULT IF THERE’S ONLY ONE PLAINTIFF, THEY
20
1 ARE MORE DIFFICULT IF THERE ARE SIX PLAINTIFFS. AND
2 HERE WHERE WE HAVE, I GUESS HUNDREDS OF PLAINTIFFS, IT’S
3 OBVIOUSLY MORE BURDEN THAN THAT. THERE’S NO DENYING
4 IT’S BURDENSOME, BUT I THINK IT’S STILL REQUIRED BY THE
5 COMMON LAW.
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6 I WOULD NOTE IN PASSING THAT AT THAT POINT
7 IN THE PLAINTIFF’S OPPOSITION BRIEF, THERE WAS VERY
8 MINIMAL, CLOSE TO NOT EXISTENT CITATION OF LEGAL
9 AUTHORITY, WHICH I THINK HELPS REINFORCE THEIR
10 PROPOSITION THAT WE REALLY NEED MORE.
11 SO THAT BRINGS ME TO THE FOURTH CAUSE OF
12 ACTION INVOLVING THE PRIVACY CLAIM. HERE THE DEFENDANT
13 IS BASICALLY TRYING TO PREVIEW A MOTION FOR SUMMARY
14 ADJUDICATION ABOUT THE ALLEGED ROGUE EMPLOYEE THAT GAVE
15 RISE TO THE CLASS ACTION SETTLEMENT IN KENTUCKY.
16 I DON’T THINK I CAN USE THE DEMURRER AS A
17 WAY TO DO AN ADVANCE TESTING OF THE VIABILITY OF ANY
18 SUCH MOTION FOR SUMMARY ADJUDICATION IT BROUGHT.
19 THE PLEADING ITSELF ON IT IS FACE I THINK IS SUFFICIENT.
20 WE DON’T HAVE A HEIGHTENED PLEADING STANDARD, AS I
21 UNDERSTAND IT, FOR THE CONSTITUTIONAL RIGHT OF PRIVACY.
22 AND I THINK IT IS A SUFFICIENT PLEADING AT THIS
23 JUNCTURE, WITHOUT PREJUDICE TO WHAT HAPPENS NEXT ON
24 MOTIONS FOR SUMMARY ADJUDICATION OR OTHERWISE.
25 ONE PASSING COMMENT TO COUNSEL, TO ME IT
26 WILL BE AN INTERESTING QUESTION, AND MAYBE IT’S A
27 QUESTION OF RESPONDEAT SUPERIOR OR RESPONSIBILITY OF AN
28 EMPLOYER FOR THE CONDUCT THEY HAVE GIVEN WORKER AND
21
1 WHETHER OR NOT THAT’S A FACT QUESTION. IT COULD BE
2 OBVIOUS IN SOME CIRCUMSTANCES, BUT WHETHER THE RECORD IN
3 THIS CASE WILL MAKE THAT A TRIABLE ISSUE OF MATERIAL
4 FACT AS TO WHETHER THE ROGUE EMPLOYEE WAS ACTING IN THE
5 COURSE AND SCOPE OF EMPLOYMENT.
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6 ANOTHER WAY OF LOOKING AT IT IS WHETHER OR
7 NOT ONE GETS TO AN INVASION OF RIGHT TO PRIVACY CLAIM
8 BASED ON NOTHING MORE THAN NEGLIGENCE BY THE DEFENDANT
9 TO BE CHARGED, WHETHER IT HAS TO BE INTENTIONAL ACT. I
10 DON’T PRETEND TO KNOW THE ANSWER TO THAT QUESTION
11 LEGALLY, BUT I POINT IT OUT TO YOU BECAUSE IT IS
12 PROBABLY WORTH BRIEFING WHEN THIS QUESTION COMES BACK
13 LATER.
14 THE 5TH CAUSE OF ACTION WE’VE ALREADY
15 REFERENCED. I THINK IT’S CONCEDED TO FAIL. THE CLAIM
16 FOR THE BENEFIT OF DELAY IN FORECLOSURE, THE RECORD IS
17 CRISP AS TO APPROXIMATELY FIVE PLAINTIFFS WHO HAVE
18 FORMAL NOTICES OF RESCISSION. PLAINTIFF PAUL RONALD AND
19 PLAINTIFF LISA RONALD; PLAINTIFF PRICILLA BOWIN,
20 B-O-W-I-N, PLAINTIFF TRACEY, T-R-A-C-E-Y, HAMPTON-
21 STEIN; AND PLAINTIFF RENE, R-E-N-E, MINNAAR,
22 M-I-N-N-A-A-R, TO MY UNDERSTANDING.
23 THE DEFENDANT WISHES TO ASSERT THAT AS TO
24 THE OTHER PLAINTIFFS WHO JOINED THIS CAUSE OF ACTION,
25 WHICH IS A RELATIVELY SMALL SUBSET OF ALL OF THE
26 PLAINTIFFS IN THIS CASE, THAT THE 6TH CAUSE OF ACTION
27 MUST FAIL. BUT I DON’T THINK AS A HYPER-TECHNICAL
28 MATTER THAT THE STATEMENTS MADE ON THE RECORD BY DEFENSE
22
1 COUNSEL, ATTEMPTING TO SHOW PATIENCE BY BANK OF AMERICA
2 AND A WILLINGNESS TO DELAY ANY FORECLOSURES ARE
3 NECESSARILY SOMETHING WITH ENOUGH OFFICIAL QUALITY AS TO
4 NEGATE THE CURRENT PLEADING AND, THEREFORE, WITHOUT
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5 INDICATING THAT THERE’S ANY FINAL VIEW THAT THERE’S BEEN
6 A VIOLATION OF THE STATUTE, I WOULD THINK AS A TECHNICAL
7 MATTER, THE 6TH CAUSE OF ACTION SHOULD BE OVERRULED AS
8 TO ALL PLAINTIFFS EXCEPT THE FIVE I’VE JUST MENTIONED.
9 THE 7TH CAUSE OF ACTION I THINK IS
10 ADEQUATELY MADE OUT, AS WELL AS THE 8TH CAUSE OF ACTION.
11 THE 8TH CAUSE OF ACTION MAY INCLUDE —
12 FIRST OFF, AS TO THE 8TH CAUSE OF ACTION, IF THE
13 PLAINTIFFS HAVE PLED A VALID CLAIM AT LEAST FOR
14 INJUNCTIVE RELIEF, UNDER THE 8TH CAUSE OF ACTION, IT
15 DOESN’T MATTER WHETHER OR NOT THEY WILL HAVE A RIGHT TO
16 MONETARY RESTITUTION. AND I THINK AS ARGUED BY THE
17 PLAINTIFFS IN THEIR OPPOSITION THERE IS SUCH A CLAIM FOR
18 INJUNCTIVE RELIEF, AND I THINK THAT’S MORE THAN ENOUGH
19 TO MAKE IT GO FORWARD.
20 IF THIS WAS A SMALLER, SIMPLER CASE, AND A
21 MOTION FOR STAY MIGHT REALLY HELP MOVE THE CASE TO
22 PROMPT CASE RESOLUTION, PERHAPS THE MOTION TO STRIKE IN
23 THIS REGARD WOULD HAVE SOME UTILITY, BUT AT THE MOMENT,
24 THERE IS SO MUCH BIGGER, MORE IMPORTANT STUFF IN THE
25 CASE, THAT I DON’T HAVE THE RESOURCES, FRANKLY, TO TRY
26 TO USE THE MOTION TO STRIKE AS A WAY TO START TRIMMING
27 AROUND SOME OF THE POSSIBLE SURPLUSAGE THAT AT THE
28 MOMENT IS SLATHERED ON THE 8TH CAUSE OF ACTION FOR
23
1 UNFAIR COMPETITION AND, THEREFORE, IN OVERRULING THE
2 DEMURRER TO THE 8TH CAUSE OF ACTION, NOT NECESSARILY
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3 INDICATING THAT IT ALL HAS MERIT.
4 I’LL MAKE ONE OTHER PASSING COMMENT AS AN
5 ASIDE, BEFORE I TURN TO THE UNRELATED SINGH V. WINDMILL
6 ESTATES MATTER, WHERE COUNSEL ARE WAITING IN
7 ANTICIPATION THAT I’LL TALK TO COUNSEL IN RONALD AFTER
8 LUNCH, AND THAT IS THAT AS I’M COMING TO UNDERSTAND THE
9 CASE, AND RECOGNIZING THAT IT IS AT MOST PLED IN PASSING
10 AND RAISED, PERHAPS BY THE PAPERS, MORE THAN IN THE
11 PLEADING, THE CONCERNS RAISED BY PLAINTIFF’S COUNSEL
12 UNDER THE PATRIOT ACT AND FROM THE NON-TRANSPARENT
13 NATURE OF THE M.E.R.S., THAT’S AN ACRONYM, M-E-R-S,
14 ENTITY IS THE PURPORTED NOMINEE OF THE HOLDER IN DUE
15 COURSE OF THE PAPER, MAY RAISE SOME SIGNIFICANT
16 QUESTIONS, PARTICULARLY SINCE THIS CASE ARISES IN THE
17 CONTEXT OF A DISPUTE ABOUT THE RIGHT OF THE DEFENDANTS
18 AS LOAN SERVICERS AT A MINIMUM, TO FORECLOSURE ON DEBT,
19 WHICH IS CLOSE TO BUT NOT THE SAME QUESTION AS THE RIGHT
20 OF A PURPORTED OWNER OF A LOAN TO FORECLOSE ON SUCH DEBT
21 AS A CREDITORS RIGHT FOR ALLEGED NONPAYMENT OF THE DEBT.
22 WHETHER IT’S THE SERVICER ACTING AS AGENT
23 FOR THE HOLDER OF THE DEBT OR THE PARTY PURPORTING TO
24 HOLD THE DEBT, IF IT’S NECESSARY TO KNOW THAT IT IS NOT
25 AN IMPERMISSIBLE HOLDER OF THE DEBT, THE INABILITY TO
26 KNOW WHO THE HOLDER OF THE DEBT IS — PRESENTS A HUGE
27 PROBLEM.
28 AND PERHAPS THAT GETS ME BACK TO WHERE I
24
1 STARTED AND THAT IS THAT IN MANY WAYS, THE PROBLEMS
2 PRESENTED HERE, INCLUDING THOSE OF A LENDING INDUSTRY
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3 THAT APPARENTLY ALLOWED THESE LOAN PACKAGES TO BECOME AS
4 COMPLICATED AS THEY DID, PARTICULARLY IN TERMS OF
5 CUTTING THEM INTO MULTIPLE PARTS AND TRANSFERRING THEM
6 IN VARIOUS WAYS PRESENTS MASSIVE SOCIOECONOMIC PROBLEMS
7 THAT ARE PRESENTLY IN PART IN THIS COURT IN THIS DOCKET,
8 BUT ARE ACTUALLY MUCH MORE AMENABLE TO A BROADER FIX.
9 I DON’T KNOW WHETHER THAT WILL BE THROUGH
10 LEGISLATIVE EFFORTS OR PERHAPS THROUGH THE ATTEMPTS OF
11 ONE OR SEVERAL ATTORNEYS GENERAL TO INDUCE
12 ACCOMMODATIONS WHICH ARE SUFFICIENT TO SATISFY THE
13 BORROWERS THAT THEY ARE WILLING TO FOREGO THEIR MAXIMUM
14 LEGAL REMEDIES IN COURT IN THE INTEREST OF OBTAINING A
15 SUITABLE HALF A LOAF SOONER, WITH MUCH LESS FUSS AND
16 BOTHER, AS COMPARED TO PRESSING FOR THE LAST OUNCE OF
17 FLESH THROUGH FORMAL LITIGATION.
18 BUT AT THE MOMENT WHAT I HAVE BEFORE ME, AT
19 LEAST FOR PURPOSES OF TESTING THE PLEADING, IS WITH NO
20 CRITICISM INTENDED AN UNDERSTANDABLE EFFORT OF LITIGANTS
21 TO PRESS FORWARD ALL BONA FIDE CLAIMS AT THIS POINT TO
22 THE MAXIMUM DEGREE BECAUSE WE ARE NOT HERE ABOUT TO
23 IMPLEMENT SOME KIND OF WORKOUT PURSUANT TO SOME SCHEME
24 SATISFACTORY TO THE FEDERAL RESERVE OR THE FEDERAL TRADE
25 COMMISSION, THE U.S. CONGRESS, OR OTHERS WHO FEEL THEY
26 HAVE AN INTEREST IN THE EFFORT.
27 I’LL SEE YOU AT 1:30. AND TIME MAY NOT
28 PERMIT — I HAVE A 2:00 IN AN UNRELATED MATTER. I KNOW
25
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1 SOME OF YOU HAVE TRAVELED THOUGH, SO PERHAPS AFTER THE
2 2:00 I CAN GIVE YOU SOME MORE TIME BUT BACK INTO THAT SO
3 I DON’T ASK YOU TO COME BACK TOMORROW, RECOGNIZING SOME
4 OF YOU HAVE TRAVELED FROM OTHER PARTS OF THE STATE, IN
5 THE HOPES OF GETTING IT DONE TODAY RATHER THAN MAKING
6 THIS A 2-DAY EXERCISE.
7 MR. STEIN: CAN WE LEAVE OUR STUFF HERE OR TAKE
8 IT?
9 THE COURT: NO BAILMENT IS CREATED, BUT YOU MAY
10 LEAVE IT IF YOU WISH.
11 COURT’S IN RECESS.
12
13
14 (A RECESS WAS TAKEN IN THIS MATTER UNTIL
15 1:30 P.M. OF THE SAME DAY.)
16
17
18
19
20
21
22
23
24
25
26
27
28
1
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1 THE COURT: THIS IS JUDGE HIGHBERGER ER WE ARE ON
2 THE RECORD N. KC 053084. ^ SING ^ SINK V. WINDMILL
3 ESTATES. I’LL TAKE APPEARANCES STARTING WITH
4 PLAINTIFF’S COUNSEL.
5 RIGHT 1: GOOD MORNING, YOUR HONOR, KIM ROBERTS ON
6 BEHALF OF PLAINTIFF.
7 THE COURT: COUNSEL FOR WINDMILL ESTATES AND
8 AFFILIATED PARTIES.
9 MR. KLEIN: DOUGLAS HARDY.
10 THE COURT: ANY OTHER COUNSEL MAKING AN APPEARANCE
11 THIS MORNING.
12 SPEAKER #: YES, YOUR HONOR.
13 SPEAKER #: /TKPWAORPBG YOUR HONOR BILL PENNY STON
14 FOR /SKWR-S CUSTOM PAINT I KNOW.
15 SPEAKER #: /TKPWOPBG YOUR HONOR, MONDAY TEE
16 RICHARDS FOR WIND SUPPLY.
17 SPEAKER #: GOOD MORNING, YOUR HONOR, KIRK OLSON
18 ON COURT CALL FOR R. AND R. SPECIALTIES.
19 SPEAKER #: JUST CONTINUE BOOB YAN FOCUS TOM
20 BUILDERS.
21 SPEAKER #: GOOD MORNING, YOUR HONOR, JASON HER
22 SHY FOR ^ BLANK ^ PLANNING ^ BLANK ^ PLANNING DRYWALL.
23 THE COURT: ANYBODY ELSE WISH TO MIKE APPEARANCE.
24 (NO RESPONSE.)
25 THE COURT: IT APPEARS THAT NOTICE IS GOOD BASED
26 ON FILING OF JANUARY THREE FOR MR. HARDY’S OFFICIALS AND
27 I ALSO /STPES AND I HAVE CASE MANAGEMENT ORDER NUMBER 3
28 PROPOSED LODGED ON JANUARY SICK FOR MR. HARDY (6TH?? (IN
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2
1 REVIEWING PAPERWORK BEFORE ME I DO NOT FIND ANY WRITTEN
2 OPPOSITION OR OBJECTIONS TIMELY FILED OR OTHERWISE. IF
3 ANY OBJECTIONS COME TO YOUR ATTENTION MR. HARDY.
4 MR. KLEIN: NO, YOUR HONOR. EVERYONE HAS SIGNED
5 IN EXCEPT FOR MR. PER ROSS WHO RENTS A ROOFER AND TURNS
6 OUT HE HAVE WAS OUT OF TOWN AND JUST UNTIL A DAY AGO HE
7 SENT E-MAIL TO BOTH ME AND PLAINTIFF’S COUNSEL
8 INDICATING HE HAD NO OBJECTION.
9 THE COURT: HAS ANYBODY ELSE JUST /SKWROEPBD US TO
10 THE ON THE PHONE FORLT SINGH VERSUS WINDMILL MATTER I
11 HEARD A CHIME.
12 (NO RESPONSE.)
13 THE COURT: APPARENTLY NOT.
14 IS THERE ANYBODY ON THE PHONE WHO WISHES TO
15 BE HEARD WHY I SHOULD NOT ADOPT CMO NUMBER FLEE? IF SO
16 SPEAK YOU HAVE GIVE ME YOUR NAME.
17 (NO RESPONSE.)
18 THE COURT: HEARING NO OBJECTION, THE ORDER TO
19 SHOW CAUSE IS DISCHARGED. CMO NUMBER 3 IS ADOPTED. THE
20 CLERK WILL FILE IT. AS WELL AS A CONFORMED COPY. WE
21 HAVE AN ENVELOPE TO MAIL A COPY TO MR. HARDY AS COUNSEL
22 FOR WINDMILL. H ESTATES. IF YOU’D BE KIND ENOUGH TO
23 GIVE NOTICE /PHRO HARDY /STPHAO*F YES, I WILL.
24 THE COURT: TO MY UNDERSTANDING NEXT DATE BEFORE
25 ME PREVIOUSLY SCHEDULED WAS FOR APRIL 15 AT 9:00 A.M..
26 /P UNLESS THERE’S OBJECTION, I’LL LEAVE THAT ON CALENDAR
27 AS OUR ONLY NEXT DATE IN THIS CASE. HEARING NO
28 OBJECTION THAT’S THE ORDER OF THE COURT ANYTHING IS I
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3
1 CAN DO TO HELP YOU THIS MORNING ^ MILLS ^ MILLIONS
2 ROBBED.
3 MS. BROWN: NO THAT’S EVERYTHING YOUR HONOR.
4 THE COURT: MR. HARDY.
5 ATTY 5: THANK YOU, YOUR HONOR.
6 THE COURT: ANY OTHER COUNSEL HAVE ANYTHING ELSE?
7 (NO RESPONSE.)
8 THE COURT: HEARING NOTHING COURT’S IN RECESS
9 DEFENDANT WINDMILL ESTATES GIVE NOTICE. END END
10
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1 CASE NUMBER: BC 409 444
2 CASE NAME: PAUL RONALD VS. BANK OF AMERICA
3 LOS ANGELES, CA TUESDAY, JANUARY 11, 2011
4 DEPARTMENT 307 HON. WILLIAM F. HIGHBERGER, JUDGE
5 APPEARANCES: (AS NOTED ON TITLE PAGE.)
6 REPORTER: ELSA BANDA LARA, CSR NO. 3226
7 TIME: P.M. SESSION
8 —O—
9
10 THE COURT: BACK ON THE RECORD IN REGARD TO RONALD
11 V. BANK OF AMERICA.
12 AS I INDICATED TO COUNSEL A MOMENT AGO OFF
13 THE RECORD, SINCE I HAVE TO JUMP TO A DIFFERENT CASE AT
14 2:00, I’D LIKE TO HEAR FROM EACH SIDE FOR 10 MINUTES.
15 I’M GOING TO RECESS YOUR CASE, DEAL WITH THE OTHER CASE
16 AT 2:00, THEN COME BACK AND DEVOTE SUCH TIME AS SEEMS
17 APPROPRIATE AFTER THAT.
18 SO LET’S START WITH PLAINTIFFS.
19 MR. SPIVAK: THANK YOU, YOUR HONOR.
20 YOUR HONOR, WHEN WE WERE OFF THE RECORD,
21 ASKED IF WE’D TALK A BIT ABOUT WHAT IT IS WE SEE DOING
22 WITH THE CASE. AND THE ANSWER IS THAT WE SEE — UNLESS
23 THINGS CHANGE — TAKING THIS CASE ALL THE WAY AND TRYING
24 IT IN FRONT OF A JURY AND, YES, TRYING TO GET THAT
25 BILLION DOLLAR VERDICT OR WHATEVER THE APPROPRIATE
26 VERDICT IS AT THE TIME, IN BEHALF OF OUR CURRENTLY NAMED
27 PLAINTIFFS AND THE ROES THAT WE ARE GOING TO BE ADDING,
28 AS WE SAID WE WOULD.
27
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1 AND WE SEE THE CASE GETTING LARGER AND,
2 WITH YOUR HONOR’S HELP, MORE FOCUSED.
3 IF YOU WILL, AND BEFORE TURNING — AND I DO
4 WANT TO TURN TO SOME OF THE COMMENTS YOUR HONOR MADE.
5 ONE OF THE MOST IMPORTANT COMMENTS
6 YOUR HONOR MADE IS THAT THIS CASE IS VIEWED IN A LARGER
7 SOCIAL ECONOMIC AND LEGISLATIVE CONTEXT. AND IT MAY BE
8 THAT THE LEGISLATURE OR CONGRESS WILL STEP IN AND TAKE
9 STEPS THAT EITHER IMPACT THIS CASE OR HELP TO RESOLVE
10 THESE ISSUES. AND WE ARE ALL AWARE OF STEPS BEING TAKEN
11 IN THAT DIRECTION.
12 BUT IT IS UP TO THE COURT, IN MY OPINION,
13 IN THE ABSENCE OF LEGISLATION THAT SOMEHOW RESOLVES
14 INDIVIDUAL CLAIMS, WHICH IS HARD TO DO, OR THE MACRO
15 ISSUES, TO ADDRESS THIS ISSUE AND SOME OF THE LARGER
16 SOCIETAL CHANGES, ROE V. WADE, OTHERS, ARE COURT-ORDERED
17 CHANGES OR COURT-ORDERED REMEDIES. AND THIS CASE MAY,
18 IN FACT, BECOME ONE OF THOSE CASES THAT BECOMES THAT
19 LARGE AND THAT SIGNIFICANT.
20 TWO RECENT EVENTS, ONE AS RECENT AS THIS
21 MORNING, EMPHASIZE THIS. IN THE FIRST, THE
22 MASSACHUSETTS SUPREME COURT THIS MORNING, IN THE CASE OF
23 U.S. BANK V. IBENEZ HELD THAT ONLY THE OWNER OF A
24 MORTGAGE CAN FORECLOSURE ON A MORTGAGE. AND THAT WAS IN
25 A CASE BROUGHT IN THAT STATE IN WHICH A SERVICING AGENT
26 AND OTHERS HAD PURPORTED TO FORECLOSURE ON MORTGAGES.
27 AND THE SUPREME COURT IN MASSACHUSETTS SAID “NO.”
28 A NUMBER OF FEDERAL COURTS IN THAT — IN
28
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1 MASSACHUSETTS, FEDERAL COURTS HAD STAYED CASES AWAITING
2 THE OUTCOME OF THIS CASE, AND EVEN THIS MORNING, A
3 NUMBER OF THOSE CASES WERE UNSTAYED.
4 AND ONE OF THOSE CASES MANSON V. GMAC
5 MORTGAGE, THE FEDERAL DISTRICT COURT IN BOSTON
6 PROHIBITED GMAC FROM FORECLOSING ON MORTGAGES BECAUSE HE
7 COULD NOT PROVE IT WAS THE OWNER.
8 WHEN WE TALK ABOUT M.E.R.S. WHEN WE TALK
9 ABOUT ISSUES IN DISCOVERY AS TO REALLY UNDERSTANDING WHO
10 OWNS THESE MORTGAGES, WHO IS THE ORIGINATING BANK, AN
11 ISSUE YOUR HONOR RAISED THAT WE’LL COME BACK TO. WHO IS
12 THE SERVICING BANK? WHO IS FORECLOSING ON THESE
13 MORTGAGES? THESE ISSUES ARE IMPORTANT.
14 YESTERDAY I WAS READING SOME CASES IN
15 NEW YORK, NOT AT THE SUPREME COURT LEVEL IN NEW YORK,
16 BECAUSE THEY ARE CALLED THE COURT OF APPEALS, BUT SOME
17 CASES IN NEW YORK COMING OUT THE EXACT SAME WAY.
18 THERE IS CLEARLY A TREND IN THIS COUNTRY
19 NOW REACHING STATE SUPREME COURTS AND FEDERAL COURTS,
20 FOR TRYING TO STOP WHAT HAS BEEN HAPPENING.
21 THE OTHER ITEM I WANTED TO CALL TO
22 YOUR HONOR’S ATTENTION IS THAT BANK OF AMERICA REPORTED
23 THIS WEEK THAT ON DECEMBER 31ST OF LAST YEAR, IT HAD
24 PAID 2.5 BILLION DOLLARS TO SETTLE CLAIMS MADE BY FANNY
25 MAY AND FREDDIE MAC, HAVING TO DO WITH REPURCHASING OF
26 MORTGAGES FROM THE COLLATERALIZED MORTGAGE POOLS THAT
27 ARE THE MIRROR PART OF THE SAME SCHEME, AND COMMITTING
28 TO PAY UP TO ANOTHER 500 MILLION DOLLARS, POTENTIALLY.
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29
1 POTENTIALLY BRINGING IT IS TO A 3 BILLION DOLLAR
2 SETTLEMENT. THERE ARE SOME CONTINGENCIES. BUT THEY
3 HAVE ALREADY PAID JUST SHORT OF 2. 6 BILLION AND — ON
4 DECEMBER 31ST.
5 SO, THERE’S A TRAIN ROLLING IN THIS NATION
6 JUDICIALLY, THROUGH COURT DECISIONS, THROUGH SETTLEMENTS
7 THAT DEAL DIRECTLY WITH WHAT’S AT ISSUE HERE.
8 AND THE LAST POINT I WANTED TO MAKE, BEFORE
9 I DEAL DIRECTLY WITH THESE ISSUES IS REALLY WHAT IS THIS
10 CASE ABOUT? AND IT’S NOT ABOUT LEGISLATION, AND IT’S
11 NOT ABOUT THE GOVERNMENT, IT’S ABOUT PEOPLE. AND
12 MR. KLEIN AND A LOT OF THE PAPERS RECENTLY SUBMITTED BY
13 THE DEFENDANTS HAVE GONE TO PAINS, ALMOST, TO SAY THAT
14 THEY SHARE THE PAIN OF THESE PEOPLE. THEY WANT TO WORK
15 WITH THEM AND US ON LOAN MODIFICATIONS AND ON PUTTING
16 ASIDE FORECLOSURES AND ALL SORTS OF THINGS.
17 WELL, IN AN UNCHARACTERISTICALLY DIRECT AND
18 ACERBIC PLEADING, MAYBE SOME DIFFERENT PEOPLE WROTE IT,
19 BUT, PLEADING THE REPLY BRIEF AND THE DEMURRER, THE
20 THIRD SENTENCE OF THE INTRODUCTION TAKES OFF THE MASK
21 AND TELLS US WHAT IS AT STAKE HERE. AND THIS IS NOT
22 ABOUT A SPECIFIC POINT TO THE DEMURRER, BUT IT SHOWS US,
23 THIS IS ABOUT PEOPLE.
24 AND THE THIRD SENTENCE OF THE INTRODUCTION
25 SAYS:
26 AT THIS POINT, THESE BORROWERS WHO
27 ALLEGEDLY ARE EXPERIENCING FINANCIAL
28 DIFFICULTIES WOULD BE BETTER SERVED
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30
1 EXPLORING LOAN MODIFICATIONS THAT MAY OFFER
2 THEM A WAY OUT OF THEIR TRYING
3 CIRCUMSTANCES —
4 NOW HERE’S THE KEY:
5 — RATHER THAN CONTINUING WITH THIS
6 LAWSUIT, WHICH AT BEST MERELY DELAYS THE
7 EVENTUAL FORECLOSURE OF THEIR PROPERTIES.
8
9 THAT’S WHAT THIS IS ABOUT. SHOULD THIS
10 CASE COME TO AN END, AND, OF COURSE, IF THE LAW IS IT
11 WILL COME TO END, THEN IT WILL. BUT SHOULD THIS CASE
12 COME TO END WITHOUT GIVING THE BENEFIT OF EVERY DOUBT TO
13 THESE PLAINTIFFS, THIS BANK INTENDS TO FORECLOSURE ON
14 AND TAKE THEIR PROPERTIES. AND IT’S REALLY A MINOR
15 POINT. I’LL OBSERVE THAT FEWER THAN HALF OF OUR CURRENT
16 PLAINTIFFS, NAMED PLAINTIFFS, ARE SITTING THERE WITH
17 NOTICES OF DEFAULTS, BUT APPARENTLY FOR THE BANK, THEIR
18 MAIN POINT IS THEY ARE STILL GOING TO FORECLOSURE ON ALL
19 THESE PROPERTIES.
20 SO THAT’S OUR SETTING, THAT’S THE CONTEXT.
21 NOW, IN THE FOUR MINUTES I HAVE REMAINING TO ME, I’M
22 GOING TO TRY TO BE SPECIFIC.
23 AND I’M GOING TO GO IN THE SAME ORDER
24 YOUR HONOR WENT, JUST BECAUSE THAT’S AS GOOD AN ORDER AS
25 ANY.
26 WE DIDN’T HAVE TIME TO CONVERSE OVER LUNCH
27 ON YOUR FIRST POINT AS TO THE 64 PLAINTIFFS FOR WHOM
28 THERE’S THE REQUEST FOR JUDICIAL NOTICE. I WANTED TO
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31
1 MAKE A COUPLE OF OBSERVATIONS.
2 FIRST, OUR ACTUAL CLAIM ON THOSE 64 IS
3 BROADER THAN THE CORPORATE AFFILIATION OR CORPORATE
4 OWNERSHIP. OUR CLAIM, AND IT’S MADE IN THE ATTACK AND
5 MORE BROADLY IN THE AMENDMENT IS THAT THOSE PLAINTIFFS
6 EITHER HAVE THEIR LOANS ORIGINATED BY BANKS THAT WERE IN
7 SOME WAY OWNED OR PART OF THE ENTERPRISE WITH
8 COUNTRYWIDE OR THAT ON AN AGENCY THEORY, INDUCING COMMON
9 CONSPIRACY THEORY, RESPONDEAT SUPERIOR, THAT COUNTRYWIDE
10 IS LIABLE FOR HAVING PARTICIPATED IN THE INITIATION OF
11 THOSE LOANS. FOR EXAMPLE, A LOAN INITIATED WITH THE
12 INTENT TO THEN ASSIGN TO COUNTRYWIDE FOR SERVICING AS
13 PART OF THIS OVERALL SCHEME.
14 AND I WANT TO HASTEN TO ADD THAT WE HAVE
15 SPECIFIC EVIDENCE OF THIS TYPE OF SCHEME, INCLUDING —
16 AND THIS IS A PARTICULARLY IMPORTANT POINT, AND IT WILL
17 COME BACK UP LATER. MR. SIERACI, WHO IS THE FORMER
18 C.F.O. OF COUNTRYWIDE, HIS NAME IS ALL OVER THE THIRD
19 AMENDED COMPLAINT, HE JUST RECENTLY SIGNED A SETTLEMENT
20 WITH THE GOVERNMENT ON THE INVESTOR FRAUD SIDE OF THIS
21 SAME SCHEME.
22 THE COURT: HE WAS THE COMPLIANCE OFFICER?
23 MR. SPIVAK: HE WAS CHIEF FINANCIAL OFFICER.
24 THE COURT: C.F.O.
25 MR. SPIVAK: HE WAS THE C.F.O. OF COUNTRYWIDE.
26 MAZILLO, SENDECKI AND SIECKI AND —
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27 THE COURT: MAZILLO I CAN DISTINGUISH.
28 MR. SPIVAK: SAMBOL IS THE C.O.O., S-A-M-B-O-L,
32
1 WAS THE C.O.O. AND SIEKI S-I-E-K-I —
2 MR. STEIN: S-I-E-R-A-C-K-I.
3 MR. SPIVAK: I DON’T THINK SO.
4 THE COURT: SAMBOL, C.O.O., SIERAKCI, C.F.O.. WHO
5 IS COMPLIANCE OFFICER?
6 MR. SPIVAK: I DON’T KNOW.
7 THE COURT: BECAUSE IF IT’S QUOTED SOME E-MAILS OF
8 THE COMPLIANCE OFFICER SAYING WHAT PROBLEMS WERE —
9 MR. SPIVAK: THAT’S ANOTHER PERSON. I’LL LOOK IT
10 UP BEFORE MY NEXT 10 MINUTES.
11 IN ANY EVENT, WE HAVE EVIDENCE THAT HE OWNS
12 AT LEAST — HAS FINANCIAL INTERESTS IN, THAT HE OWNS
13 PART OF THE GRANADA NETWORK WHICH IS IN OUR COMPLAINT.
14 AND WE HAVE EVIDENCE THAT HE OWNS PART OF THE MARINERS
15 BANK AND AT LEAST ONE OTHER BANK THAT OUR ORIGINATING
16 LENDERS HERE, THE — THAT PERTAIN TO TWO OF THE
17 PLAINTIFFS. AND THAT IS HIM DIRECTLY. HAS A FINANCIAL
18 INTEREST.
19 WE ALSO HAVE EVIDENCE OF OTHER HIGH RANKING
20 OFFICERS, THOUGH NOT NECESSARILY HIM, HAVING INTEREST IN
21 THESE BANKS. AND WE HAVE EVIDENCE OF THE GRANADA
22 NETWORK WORKING WITH SOME OF THESE BANKS ON THE LOAN
23 ORIGINATIONS FOR THE PURPOSE THAT WE’VE ALLEGED.
24 SO THE POINT I’M MAKING IS THAT THE ISSUE
25 IS BROADER THAN SIMPLY OWNERSHIP.
26 WHAT WE ARE PREPARED TO DO, AND WE CAN DO
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27 IT AFTER ALL OF THIS HALF HOUR IS SIT DOWN WITH THE
28 DEFENSE COUNSEL AND GO THROUGH THEIR EXHIBIT, AND THERE
33
1 ARE A COUPLE OF VERY LARGE SEPARATE BANKS, HSBC COMES TO
2 MIND. AND, YOUR HONOR, MINDFUL OF THE POINT YOU MADE,
3 WE ARE PREPARED TO DISMISS SOME OF THOSE WITHOUT
4 PREJUDICE.
5 AND IF THE EVIDENCE ESTABLISHES THAT THEY
6 WERE, IN FACT, PART OF A — I’M USING THE WORD
7 “CONSPIRACY” LOOSELY, BUT THEY WERE INDUCED PART OF THE
8 SCHEME, WE WILL BRING THEM BACK IN. BUT WE DO NOT SEE
9 THAT WE SHOULD BE DISMISSING WITH PREJUDICE OR OTHERWISE
10 THOSE WHOSE LOANS WERE ORIGINATED BY A SERIES OF
11 UNKNOWN, UNKNOWABLE ENTITIES, MANY OF WHICH WE HAVE
12 DIRECT EVIDENCE, HAD AFFILIATION WITH THE GRANADA
13 NETWORK OR THE BANK, MEANING COUNTRYWIDE, AND OTHERS OF
14 WHICH, BASED ON WHAT WE KNOW, WE BELIEVE THEM TO HAVE
15 HAD AFFILIATIONS.
16 IF IT TURNS OUT THERE’S NO AFFILIATION ONE
17 WAY OR ANOTHER, WE HAVE ALREADY SAID IN OUR PAPERS WE
18 WOULD DISMISS THE ORIGINATION CLAIMS AS TO THOSE
19 PLAINTIFFS.
20 THE COURT: OKAY. SAVE YOUR OTHER THOUGHTS FOR
21 AFTER WE GET BACK, BUT I DO APPRECIATE YOUR WILLINGNESS
22 TO AT LEAST VIEW HSBC AS PERHAPS MORE OF A COMPETITOR OF
23 COUNTRYWIDE THAN THE FELLOW FROM SPIRE WOULD.
24 LET ME HEAR FROM DEFENDANTS NOW.
25 MR. KLEIN: THANK YOU, YOUR HONOR, I WOULD LIKE
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26 TO QUICKLY ADDRESS THOSE TWO POINTS RAISED BY
27 MR. SPIVAK, THEN I’LL GO TO THE DEMURRER.
28 FIRST OF ALL, EVERY SINGLE CASE SINCE WE’VE
34
1 BEEN IN THIS COURTROOM, DISCUSSING M.E.R.S. AND COURT’S
2 ABILITY TO FORCLOSE HAS COME FROM ANOTHER STATE, FLORIDA
3 OR MASSACHUSETTS, AND STATE COURT OPINIONS THERE.
4 I HAVE NOT READ ALL THOSE DECISIONS, BUT I
5 CAN TELL YOU THAT THESE OPINIONS THAT THEY ARE TALKING
6 ABOUT, AS I UNDERSTAND IT ARE COMING FROM JUDICIAL
7 FORECLOSURE STATES, OR DIFFERENT STATUTORY SCHEMES, WITH
8 DIFFERENT REQUIREMENTS THAN WHAT’S HERE IN CALIFORNIA.
9 AND I’M NOT GOING TO TRY TO OPINE AS TO
10 WHAT’S GOING ON IN THOSE STATES, THAT’S NOT MY AREA
11 TODAY. TODAY IS TO FOCUS ON WHAT’S HAPPENING IN THIS
12 CASE.
13 AND IN THIS CASE, WE HAVE A NON-JUDICIAL
14 FORECLOSURE STATE, SO ALL THESE REFERENCES TO A TREND OR
15 TRAIN THAT MR. SPIVAK MAKES, HAVE NO BEARING ON WHAT’S
16 HAPPENING IN THE STATE OF CALIFORNIA AND WHAT’S
17 HAPPENING WITH THESE PLAINTIFFS.
18 THE SECOND POINT, I WOULD LIKE TO ADDRESS,
19 REALLY QUICKLY, IS WITH RESPECT TO THESE 64 PLAINTIFFS,
20 I ACTUALLY BELIEVE IT’S SIGNIFICANTLY MORE. WE WERE
21 LIMITED ON TIME, ABILITY OF PRIOR TO FILING THE
22 DEMURRER, TO ACTUALLY GATHER EVERYONE WHO’S NOT
23 ORIGINATED FROM THE BANK, BUT TAKING — LET’S TAKE FOR
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24 EXAMPLE A BORROWER WHO ORIGINATED A LOAN AT MARINERS
25 CAPITAL BANK, WHICH IS WHAT MR. SPIVAK RAISED.
26 HOW ARE REPRESENTATIONS BY THE BANK OR BY
27 COUNTRYWIDE FOR CONCEALMENTS, HOW CAN COUNTRYWIDE ENGAGE
28 IN SOME SORT OF CONCEALMENT WITH A BANK IT’S — WITHIN A
35
1 LENDER OR BORROWER HAS NO CONTACT WITH? THERE’S JUST —
2 THE CONCEPT OF EVERY THEORY IN THIS PLEADING, AS
3 CURRENTLY PLED, DOESN’T JIVE WITH THE CONCEPT THAT
4 SOMEHOW THERE’S SOME BANK OUT THERE IN ORIGINATING A
5 LOAN THAT’S ULTIMATELY SOLD SOMEHOW TO THE BANK, BUT
6 THERE’S ANOTHER LENDER OUT THERE THAT’S ORIGINATING A
7 LOAN, THAT WE HAVE SOME SORT OF DUTY OR MADE SOME SORT
8 OF REPRESENTATION TO IN CONNECTION WITH A LOAN
9 TRANSACTION.
10 THE COURT: WELL, YOUR ADVERSARY IS WILLING TO
11 TELL ME IN OPEN COURT, ON THE RECORD, THAT HE BELIEVES
12 IN GOOD FAITH AS AN ADVOCATE, THAT HE EXPECTS TO PROVE A
13 CIVIL CONSPIRACY AS BETWEEN COUNTRYWIDE AND MARINERS,
14 THROUGH VARIOUS HUMANS AND THAT THEREFORE IT MAKES
15 COUNTRYWIDE CHARGEABLE WITH THE BUSINESS OF MARINERS AND
16 PLACING LOANS, VIS-A-VIS ANY FRAUDULENT CONDUCT OR OTHER
17 TORTIOUS CONDUCT OF COUNTRYWIDE THAT’S PART OF THE
18 CONSPIRACY.
19 SO, THE PROOF IS A QUESTION FOR ANOTHER
20 DAY, BUT I BELIEVE THAT MR. SPIVAK IS PREPARED TO SET UP
21 THAT LARGE TASK AHEAD OF HIMSELF IN THE BELIEF HE CAN
22 PROVE THEM.
23 MR. KLEIN: WELL, YOUR HONOR, THAT DOVETAILS
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24 NICELY —
25 THE COURT: SO, I MEAN, YOU HAVE A KIND OF — I
26 DON’T MEAN IT PERJORATIVELY, BUT IT’S SORT OF, I GUESS
27 THERE’S PROBABLY NO MORE APT TERM FOR IT THAN WHAT’S
28 SOMETIMES CALLED THE LAUGHING DEFENSE, WHICH IS SORT OF
36
1 THIS IS JUST SO GRANDIOSE AND AMBITIOUS A CLAIM BROUGHT
2 AGAINST MY CLIENT THAT IT CAN’T POSSIBLY BE REAL.
3 BUT THAT’S A DIFFERENT QUESTION THAN WHEN
4 THEY ARE PUT TO THE PROOF, WHETHER IT HOLDS TOGETHER, AS
5 TO WHETHER OR NOT THIS KIND OF ATTACK ON THE PLEADING IS
6 BEING ESSENTIALLY JUST SO AMBITIOUS AS TO THEREFORE
7 SOMEHOW BE ABSURD AND THEREFORE BECAUSE IT’S ABSURD
8 FAILS, ISN’T NECESSARILY A WELL-TAKEN DEMURRER.
9 IT MAY PRESAVE SOME INTERESTING FACTUAL
10 DISPUTES AT LATER DATE, BUT I’M NOT SURE THAT THAT
11 NECESSARILY JUST KNOCKS IT — YOU KNOW, SHOOTS IT OUT
12 BELOW THE WATERLINE. BUT I DO RECOGNIZE IT’S A VERY
13 AMBITIOUS PROJECT MR. SPIVAK HAS SET OUT FOR HIMSELF.
14 MR. KLEIN: THAT DOVETAILS, YOUR HONOR, WITH
15 OTHER POINTS I’D LIKE TO MAKE WHICH DEAL WITH THE
16 DEMURRER. AND I’D LIKE TO FOCUS THE COURT ON TWO ISSUES
17 BASED ON THE COURT’S TENTATIVE THIS MORNING.
18 THE FIRST ONE IS DUTY IN CONNECTION WITH
19 THE CONCEALMENT CLAIM.
20 THE COURT: THAT’S WHY MY PROPOSED WRIT IN THE
21 PERLAS CASE IS SO INTERESTING, BECAUSE I THINK THAT’S
22 THE RIGHT QUESTION FOR THE COURT OF APPEALS EARLY.
23 MR. KLEIN: I APPRECIATE THAT, AND I’D LIKE TO
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24 ADDRESS THAT A LITTLE BIT WITH FULL RECOGNITION OF THE
25 COURT’S DEFERENCE TOWARDS THE COURT OF APPEAL AND
26 POSSIBLY THAT PROCESS.
27 THE SECOND PART DEALS WITH CAUSATION, WHICH
28 IS ALSO AN ELEMENT OF BOTH THE FRAUD CLAIM OR
37
1 CONCEALMENT CLAIM. AND ALSO IT’S AN ELEMENT OF THE
2 17200 CLAIM. AND I THINK BOTH OF THEM ARE LACKING HERE
3 WITH RESPECT TO DUTY, IT’S 30 YEARS OF CALIFORNIA CASE
4 LAW STARTING WITH WAGNER V. BENSON; GOING TO CRUZ V.
5 BANK OF AMERICA; TO PRICE VERSUS WELLS FARGO, ALL
6 ESTABLISH THAT EXCEPT FOR BORROWING STATUTORY EXPRESS —
7 STATUTORY PROVISIONS OR ESTABLISHED DUTIES, A LENDER
8 OWES NO DUTY TO THE BORROWER.
9 AND I GUESS WHAT I’M TRYING TO GET IS SOME
10 CLARITY FROM THE COURT IN TERMS OF WHAT EXACTLY THE
11 ISSUE IT’S PROPOSING TO BRING TO THE COURT OF APPEAL, IF
12 THERE’S NO — IF THE BASELINE IS THERE’S NO DUTY THERE
13 NEEDS TO BE AN ALLEGATION OF SOMETHING THAT ESTABLISHES
14 THAT DUTY.
15 THE COURT: WELL, IN MY ANALYSIS, IN PREPARING
16 MYSELF TO ISSUE THE SPOKEN TENTATIVE, I WAS RATHER
17 PERSUADED BY THAT PORTION OF YOUR ADVERSARY’S BRIEF THAT
18 SAID THAT THERE WAS NO AUTOMATIC IMMUNITY ON A BANK.
19 NOW, ARGUABLY, THE ABSENCE OF A DUTY IS
20 ANOTHER WAY OF SAYING IMMUNITY. BUT I SORT OF WENT BACK
21 TWO PACES TO THE MORE FUNDAMENTAL COMMON LAW PRINCIPLE
22 THAT ONE CAN’T ENGAGE IN INTENTIONAL FRAUD THROUGH
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23 CONCEALMENT WITH SOMEBODY WITH WHOM ONE IS DOING
24 BUSINESS, AND BE AUTOMATICALLY IMMUNIZED TO THE VIEW
25 THAT THAT IS THE CORRECT STARTING POINT FOR ANALYSIS,
26 RATHER THAN SAYING THAT THE CASES ARE CLEAR THAT AS
27 BETWEEN BANKS AND THEIR CUSTOMERS, THERE IS SUCH A CLEAR
28 RECOGNITION OF NON-DUTY THAT EVEN KNOWING FRAUDULENT
38
1 CONCEALMENT IS IMMUNIZED.
2 BUT TO ME THAT’S THE INTERESTING QUESTION
3 FOR THE COURT OF APPEALS, BECAUSE YOUR ADVERSARY IN
4 THEIR OPPOSITION GO BACK TO SORT OF THE FIRST PRINCIPLES
5 ON PROSSER ON TORTS OR WITKIN ON TORTS, WHICH IS AS YOU
6 ENTER INTO A COMMERCIAL RELATIONSHIP YOU CAN’T ENGAGE IN
7 THIS INTENTIONAL TORT.
8 AND WHETHER IT IS A FRAUDULENT
9 MISREPRESENTATION, OR A FRAUDULENT CONCEALMENT, IT
10 STRUCK ME THAT ONCE YOU HAVE A BUSINESS RELATIONSHIP,
11 WHICH, KNOCKING ASIDE THE 64 PLAINTIFFS, HYPOTHETICALLY,
12 AND DEALING WITH SOMEBODY WHO REALLY HAD AN ORIGINATION
13 WITH COUNTRYWIDE, IF MOZILO AND HIS TROUPS ARE
14 INTENTIONALLY INFLATING THE VALUE OF ALL OR MUCH
15 AMERICAN RESIDENTIAL REAL ESTATE, IN ORDER TO GENERATE
16 MORE LOANS, IN ORDER TO GENERATE SHORT-TERM PROFITS AND
17 BONUSES, AND THEY KNOW THEY ARE DOING IT, BUT CHOOSE NOT
18 TO TELL THEIR CUSTOMERS AS THEY APPROACH, THAT THEY ARE
19 BEING SUCKED INTO THIS MAW; AND THE PLAINTIFF OR ANYONE
20 OF THEM ARE SUCKED INTO THE MAW, AS PART OF KNOWING
21 FRAUDULENT CONCEALMENT AND ENTERING INTO A CONTRACT WITH
22 COUNTRYWIDE TO ORIGINATE A LOAN, AT LEAST UNDER MY FIRST
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23 THEORY OF FIRST PRINCIPLES OF WHAT I WOULD THINK TO BE
24 THE LAW UNDER PROSSER ON TORTS OR WITKIN ON TORTS OR
25 WITKIN SUMMARY OF CALIFORNIA LAW THE SECTION RELATED TO
26 TORTS, AND THE APPELLATE CASES ON WHICH THEY WOULD OF
27 COURSE RELY, THAT THAT DUTY MIGHT BE RECOGNIZED.
28 BUT, YOU MAY BE RIGHT, THAT CASES LIKE
39
1 PERLAS AND/OR THE OTHER CASES YOU REFER TO ACTUALLY
2 ADOPT A JURISPRUDENTIAL VIEW THAT BANKS SHOULD BE
3 FUNCTIONALLY IMMUNIZED IN THIS ASPECT OF THE RELATION
4 WITH CUSTOMERS. AND IF THAT IS THE VIEW OF THE COURT OF
5 APPEALS OR I HAVE GOT IT WRONG, IT WOULD BE BETTER TO
6 KNOW THE ANSWER TO THAT EARLY, BECAUSE PROBABLY IN MANY
7 WAYS THE HIGH STAKES CLAIM IN THIS CASE, ARE THE COMMON
8 LAW TORTS FOR FRAUDULENT ORIGINATION, BECAUSE THEY
9 ATTACKED A PUNITIVE DAMAGES.
10 THE PRIVACY CLAIMS VERY DIFFERENT. THEY
11 HAVE A DIFFERENT FACTUAL UNDERPINNING. I DON’T THINK
12 YOU GET TO NEAR THE SAME ORDER OF MAGNITUDE OF DAMAGES
13 IF THEY ARE GOING TO WORK AT ALL. YOUR DEMURRER HAS
14 ALREADY PREVIEWED WHAT MAY BE SOME RATHER EFFECTIVE
15 DEFENSES TO EITHER WHITTLE DOWN EXPOSURE OR TOTALLY
16 ELIMINATE EXPOSURE. SO RELATIVE TO CASE VALUE, AND
17 MR. SPIVAK’S HOPE TO TRY THE CASE TO THE JURY AND HAVE A
18 LOT OF ZEROS UP ON THE BOARD, IT WOULD BE REALLY NICE TO
19 GET THE COURT OF APPEALS TO TELL US WHETHER YOUR NO DUTY
20 PREMISE AS TO THE COMMON LAW CLAIMS REALLY DOES HOLD
21 TIGHT NO MATTER HOW EGREGIOUS THE ALLEGED CONDUCT IS,
22 BECAUSE YOUR ADVERSARIES COMEBACK IS, WAIT A MINUTE,
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23 THIS IS EGREGIOUS INTENTIONAL TORT AND WE DON’T THINK
24 THE LAW ESTABLISHES IMMUNITY.
25 AND YOU ARE SAYING ESSENTIALLY, NO, A
26 COUPLE OF DECADES OF THE LAW SAY THAT BETWEEN BANK AND
27 ITS CUSTOMER IT HAS IMMUNITY IN THE FORM OF NO DUTY AS
28 TO THE POSSIBILITY OF ENGAGING IN FRAUD IN CONNECTION
40
1 WITH A LOAN TRANSACTION.
2 AND I GUESS I’M NOT YET PREPARED IN THE
3 FACE OF A DEMURRER THAT SAYS THIS IS AN INTENTIONAL
4 TORT, TO FIND THAT THE NO DUTY CASES GO THAT FAR. BUT
5 IT’S VERY MUCH A DEBATABLE POINT, WHICH IS WHY I WOULD
6 LIKE THE WRIT.
7 AND, CANDIDLY, IF I WERE TO RULE THE OTHER
8 WAY I’D WANT A WRIT JUST AS FAST, IF — ALTHOUGH I GUESS
9 FRANKLY IF I FOUND NO DUTY, THE PROBLEM THERE IS WE
10 WOULDN’T HAVE A FINAL JUDGMENT. WE’D NEED A WRIT TO GET
11 EARLY REVIEW OF IT ANYWAY, BECAUSE WE HAVE OTHER CLAIMS,
12 IMPEDING THE ENTRY OF FINAL JUDGMENT, SO IT WOULD STILL
13 TAKE A WRIT TO TEST THE MERITS OF THE CONTRARY RULING.
14 MR. KLEIN: WELL, I APPRECIATE —
15 THE COURT: BUT SO FAR I’M INCLIENT TO THINK THAT
16 YOUR ADVERSARY’S SORT OF HORNBOOK LAW AS TO THEIR
17 WILLINGNESS TO ESTABLISH THAT THIS IS A VERY INTENTIONAL
18 TORT COMMITTED BY COUNTRYWIDE AND ITS VARIOUS PEOPLE
19 DOESN’T GET TO IMMUNITY.
20 MR. KLEIN: WE CAN CERTAINLY TAKE THAT WRIT,
21 YOUR HONOR. AND AS I UNDERSTAND IT, THE QUESTION IS
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22 WHICH YOUR HONOR IS LOOKING TO CERTIFY FOR A WRIT, IS
23 WHETHER — UNDER THE CIRCUMSTANCES OF ALLEGATIONS OF
24 CONDUCT TO ENGAGE IN SOME SORT OF FRAUDULENT SCHEME,
25 WHETHER THERE’S A DUTY BY THE LENDER TO DISCLOSE THAT TO
26 THE PROSPECTIVE BORROWER OR EXISTING BORROWER.
27 IS THAT SAFE TO SAY?
28 THE COURT: YES.
41
1 MR. KLEIN: THANK YOU, YOUR HONOR. I APPRECIATE
2 THE CLARIFICATION ON THAT. I WOULD LIKE TO GO INTO
3 CAUSATION, I RECOGNIZE —
4 THE COURT: GOOD TIME TO TAKE A BREAK FOR THE
5 OTHER CASE.
6 MR. KLEIN: GREAT.
7 THE COURT: COURT’S IN RECESS.
8
9 (RECESS.)
10
11 THE COURT: BACK ON THE RECORD. WE HAVE ABOUT AN
12 HOUR AND 15 MINUTES.
13 BECAUSE IT IS A DEFENSE DEMURRER AND MY
14 TENTATIVE SO FAR IS TO, IN LARGE PART, OVERRULE, I THINK
15 AT THIS POINT, I’LL GIVE THE NEXT 40 MINUTES TO DEFENSE
16 COUNSEL, RESERVING SUCH TIME AS YOU WANT AND THEN 40
17 MINUTES TO PLAINTIFF’S COUNSEL. YOU CAN PICK UP WHERE
18 YOU WERE MIDSTREAM.
19 MR. KLEIN: THANK YOU, YOUR HONOR.
20 AS I MENTIONED IN OUR PRIOR SESSION, THERE
21 WERE TWO ISSUES I’D LIKE TO ADDRESS. THE FIRST ONE WAS
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22 DUTY WITH RESPECT TO CONCEALMENT, I THINK WE’VE HAD A
23 DISCUSSION ON THAT, I APPRECIATE THE COURT’S INPUT, WITH
24 RESPECT TO THAT ISSUE.
25 THE SECOND ISSUE I MENTIONED THAT WE’D LIKE
26 TO ADDRESS, IS CAUSATION. AND IT DEALS WITH BOTH ON THE
27 CONCEALMENT CLAIM AND ON THE 17200 CLAIM, BOTH WHICH
28 REQUIRE AN ALLEGATION OF CAUSATION BETWEEN THE ALLEGED
42
1 WRONGFUL ACT AND THE HARM THAT’S OCCURRED.
2 I CAN —
3 THE COURT: AS I UNDERSTAND IT, BASICALLY,
4 DEFENDANTS GOT REAL ESTATE PRICES GENERALLY AND SPECIFIC
5 TO EACH PLAINTIFF’S PURCHASE OR REFI ARTIFICIALLY HIGH.
6 THEY RELIED UPON THE APPARENT PRICING ON THE MARKET TO
7 THEIR DETRIMENT, EITHER BY SOMETHING TOO EXPENSIVE WITH
8 FINANCING OR SADDLING THEIR PROPERTY WITH MORE FINANCING
9 THAN IT JUSTIFIED. AND NOW THEY FIND THEMSELVES UNDER-
10 WATER, THAT’S THE HARM.
11 CORRECT, MR. SPIVAK?
12 MR. SPIVAK: YOUR HONOR, YES, IN PART. WE ARE
13 ALSO ASSERTING THAT BECAUSE OF THE SCHEME, PLAINTIFFS
14 ENTERED INTO MORTGAGES THAT THEY SHOULD NOT HAVE ENTERED
15 INTO WITH COUNTRYWIDE AT ALL. THAT WOULD HAVE PREVENTED
16 COUNTRYWIDE FROM EMBARKING ON THE OTHER HALF OF ITS
17 SCHEME WHICH LED TO THE REAL ESTATE COLLAPSE.
18 SO THAT THEIR PROPERTY VALUES DECLINED IN
19 PART BECAUSE TAKING THEM IN BULK, BECAUSE THEY ALL, NOT
20 KNOWING WHAT WAS OWING OCCURRING, TOOK A COUNTRYWIDE
21 MORTGAGE. HAD THEY TAKEN THEIR MORTGAGES ELSEWHERE
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22 COUNTRYWIDE WOULD NOT HAVE BEEN ABLE TO IMPLEMENT ITS
23 SCHEME WITH THE RESULTING LIQUIDITY CRISIS.
24 THE COURT: SO, TO SOME EXTENT, BY BEING FODDER
25 FOR COUNTRYWIDE MILL, THEY LET COUNTRYWIDE INFLATE THE
26 MARKET GENERALLY BY BEING A COUNTRYWIDE CUSTOMER, RATHER
27 THAN JUST BEING AN HSBC CUSTOMER.
28 MR. SPIVAK: YES, YOUR HONOR.
43
1 THE COURT: BUT, BASICALLY, THE MAIN HARM WAS THAT
2 THE MARKET GOT OVER INFLATED AND THEY GOT INTO THE
3 MARKET AT WRONG TIME AND/OR SADDLED THEIR PROPERTY EVEN
4 IF THEY BOUGHT IT EONS AGO OR INHERITED IT, WITH A
5 MORTGAGE BEYOND WHAT IT WOULD TOLERATE.
6 MR. KLEIN: I THINK THAT FAIRLY IDENTIFIES MY
7 UNDERSTANDING OF WHAT THE HARM IS, IS BASICALLY IF YOU
8 LOOK AT THE FACTORS OVERALL, SOMEHOW, SOME SORT OF
9 CONDUCT BY THE BANK WOULD IN TURN LED TO THE GLOBAL
10 DOWNTURN IN THE ECONOMY, WHICH LED TO THE CREDIT CRISIS,
11 WHICH LED TO THE COLLAPSE —
12 THE COURT: I THINK IT’S ENOUGH FROM THEIR POINT
13 OF VIEW THAT IT LED TO THE HOUSING BUBBLE, WHICH WAS
14 GOING TO BE INHERENTLY SELF-DESTRUCTIVE OF ITS OWN
15 ACCORD, WITHOUT REGARD OF THE NICETIES OF YEN, EXCHANGE
16 RATIOS OR THE INABILITY OF GENERAL MOTORS TO SUPPORT ITS
17 HIGH COST STRUCTURE DOING BUSINESS OR SPENDTHRIFT HABITS
18 OF CERTAIN GOVERNMENTS TO SPEND MORE THAN THEY TOOK IN
19 TAX REVENUE, WHICH HAVE BEEN COMPOUNDING FACTORS IN
20 ECONOMIC PROBLEMS, BUT BASICALLY THE HOUSING BUBBLE IN
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21 AND OF ITSELF WAS DOOMED TO FAIL.
22 MR. KLEIN: I WON’T TRY TO BE AN EXPERT ON THE
23 HOUSING BUBBLE TODAY, BUT I CAN TELL, I CAN IDENTIFY
24 THROUGH, YOU KNOW, A NUMBER OF FACTORS, COMPLEX, AND
25 SOPHISTICATED FACTORS, THAT ARE AT PLAY HERE, THAT DON’T
26 INVOLVE THE BANK THAT ALL CONTRIBUTED IN SOME WAY, IF
27 YOU LOOK AT, YOU KNOW, WHAT IS PUBLISHED OUT THERE, TO
28 THE HOUSING BUBBLE STARTING WITH THE FED AND AL
44
1 GREENSPAN’S DESIRE TO KEEP INTEREST RATES LOW FOLLOWING
2 911 AND THE DOTCOM BUBBLE THAT BURST.
3 THEN YOU CAN GO TO THE CLINTON
4 ADMINISTRATION WITH DEREGULATION, WITH ROBERT RUBIN AND
5 PHIL GRAHAM, WHICH ALLOWED BROKERAGE FIRMS TO USE BANK
6 DEPOSITOR FUNDS TO ENGAGE IN INVESTMENT ACTIVITIES FOR
7 THEIR OWN ACCOUNT.
8 YOU CAN LOOK AT OF GOVERNMENT POLICIES AND
9 EXPANSION OF G.S.E.’S.
10 THE COURT: WHAT’S A G.S.E?
11 MR. KLEIN: GOVERNMENT SUBSIDIZED ENTITIES SUCH
12 AT FREDDIE MAC AND FANNY MAY, AND THE 500 BILLION DOLLAR
13 COMMUNITY REDEVELOPMENT ACT.
14 YOU CAN LOOK AT EXCESSIVE LEVERAGE BY
15 INVESTMENT BANKS SUCH AS BEAR STEARNS AND LEHMAN
16 BROTHERS. THERE’S FINANCIAL ENGINEERING GOING ON WITH
17 A.I.G., AND THE EXPONENTIAL GROWTH OF CREDIT DEFAULT
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18 SWAPS.
19 THE COURT: BUT SEE NOW THE CHALLENGE AT THE
20 MEMENT IS I’VE GOT A PLEADING THAT SAYS THAT MR. MAZILO
21 AND HIS TEAM WERE WITHIN THE IDEA OF THE TORT LAW, IN
22 TERMS OF SUBSTANTIAL CAUSE, WHICH DOESN’T HAVE TO BE
23 SOLE CAUSE, BUT DOES HAVE TO BE SUBSTANTIAL CAUSE,
24 CAPABLE OF MAKING A HOUSING BUBBLE.
25 IS IT ARGUABLY IMPLAUSIBLE AT SOME POINT?
26 MAYBE, BUT THAT’S WHERE I REFER TO — AT THE MOMENT —
27 AND I DON’T MEAN THE PHRASE LAUGHING DEFENSE IN A
28 PERJORATIVE SENSE. IT IS REALLY IN A SENSE OF SAYING
45
1 THEY ARE REALLY JUST HEAPING TOO MUCH ON POOR LITTLE OLD
2 COUNTRYWIDE TO BE ABLE TO CAPABLE, SO DISTORTING HOUSING
3 PRICES ON THE ECONOMY.
4 BUT I DON’T THINK I’D TEST IT ON DEMURRER.
5 INTERESTINGLY, IT’S NOT CLEAR I’D TEST IT ON SUMMARY
6 JUDGMENT MUCH BETTER. BUT, YET A COURT OF APPEALS WILL
7 PROBABLY AT SOME POINT, FACTOR THIS ALL TOGETHER WITHOUT
8 GOING THROUGH TRIAL TRANSCRIPTS, LISTENING TO 28
9 WITNESSES AND WONDERING WHETHER THEY WERE CREDIBLE OR
10 NOT. BECAUSE THESE ARE THE LARGER ISSUES INVOLVED AS TO
11 EXACTLY HOW IT CAME TO BE IN THE PRICKED HOUSING BUBBLE
12 THAT WE HAPPEN TO BE IN NOW.
13 BUT, AGAIN, I’M TESTING ON DEMURRER, AT THE
14 MOMENT, WHICH IS WHY I STARTED THE DISCUSSION SAYING,
15 NEITHER SIDE SHOULD WALK OUT OF HERE THINKING THAT THIS
16 HAS BEEN A HUGELY VALUABLE EXERCISE IN CALIBRATING HOW
17 STRONG OR WEAK THE CASE IS, BECAUSE THE CONSTRAINTS OF
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18 WHAT I HAVE TO DO IN RULING ON DEMURRER, KEEP ME FROM
19 COMING IN HERE AND SORT OF REALLY WHACKING AWAY AT THE
20 CASE TO GET TO ITS ULTIMATE CASE VALUE. BECAUSE I DON’T
21 HAVE THE RIGHT PROCEDURAL TOOL. I DON’T HAVE THE FULL
22 RECORD. I CERTAINLY DON’T MEAN TO SUGGEST TO PLAINTIFFS
23 THAT FOR CERTAINTY THIS CASE IS GOING TO IMPLODE LIKE
24 ITS OWN HOUSING BUBBLE, BUT SIMPLY THAT WE ARE TOO EARLY
25 IN THE PROCESS TO BE DOING A VERY ACCURATE JOB OF
26 CALIBRATING HOW THE CASES ARE GOING TO COME OUT.
27 MR. KLEIN: MY CONCERN, YOUR HONOR, IS I
28 APPRECIATE THE STAGE IN THE LITIGATION WHERE WE’RE AT.
46
1 AND I APPRECIATE THE RESTRAINTS ON THE COURT IN TERMS OF
2 WHAT IT CAN ACTUALLY DECIDE AT THE PLEADING STAGE AS
3 OPPOSED TO SUMMARY JUDGMENT.
4 BUT EVEN IF WE LOOK AT THE PEOPLE IN THIS
5 COURTROOM, WE CAN — THE LAW WILL DEMONSTRATE AS A
6 MATTER OF LAW, THAT THEY CAN’T ALLEGE THAT THE BANK IS
7 THE CAUSE OF THEIR LOSS IN PROPERTY.
8 FOR EXAMPLE, THE COURT MAY HAVE A HOME, THE
9 COURT REPORTER MAY HAVE A HOME, THE COURT CLERK MAY HAVE
10 A HOME, SOME OF WHICH ARE NOT FINANCED BY THE BANK. AND
11 YET, WE’VE ALL SUFFERED A LOSS IN VALUE ON OUR HOMES.
12 AND I THINK THE CASE — LET ME READ FROM DARO VS.
13 SUPERIOR COURT, 151 CAL.APP.4TH, 1079, WHICH BASICALLY
14 SAYS — IT WILL BE ONE PARAGRAPH, SO —
15 THE COURT: JUST DON’T ACCELERATE YOUR PACE,
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16 BUT GO AHEAD.
17 MR. KLEIN: I WON’T.
18 WHEN A U.C.L. ACTION, IS BASED ON AN
19 UNLAWFUL BUSINESS PRACTICE, AS HERE, A
20 PARTY MAY NOT PREMISE ITS STANDING TO SUE
21 UPON INJURY CAUSED BY A DEFENDANT’S LAWFUL
22 ACTIVITY, SIMPLY BECAUSE THE LAWFUL
23 ACTIVITY HAS SOME CONNECTION TO AN UNLAWFUL
24 PRACTICE THAT DOES NOT OTHERWISE AFFECT THE
25 PARTY.
26 IN SHORT, THERE MUST BE A CAUSAL
27 CONNECTION BETWEEN THE HARM SUFFERED AND
28 THE UNLAWFUL BUSINESS ACTIVITY.
47
1 THAT CAUSAL CONNECTION IS BROKEN
2 WHEN COMPLAINING PARTY WOULD SUFFER THE
3 SAME HARM, WHETHER OR NOT A DEFENDANT
4 COMPLIED WITH THE LAW.
5
6 AND WHAT WE HAVE HERE, YOUR HONOR, IS
7 PEOPLE IN THE COURTROOM WHO HAVEN’T FINANCED THEIR HOME
8 THROUGH THE BANK HAVE SUFFERED A LOSS IN VALUE. AND THE
9 BORROWERS WHO ARE PLAINTIFFS IN THIS CASE, HAVE SUFFERED
10 A LOSS IN VALUE, MAKING — BREAKING THE CAUSAL
11 CONNECTION.
12 AND, IMPORTANTLY, WHAT THAT EXCERPT ALSO
13 IDENTIFIES FOR THE COURT IS THAT THIS ISN’T JUST A
14 CAUSATION ISSUE. THIS IS A PROP 64 STANDING ISSUE.
15 YOU HAVE TO BE ABLE TO ALLEGE A HARM CAUSED
16 BY THE CONDUCT OF THE BANK IN ORDER TO HAVE STANDING TO
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17 PURSUE A U.C.L. CLAIM. AND HERE THAT CAUSAL CONNECTION
18 IS BROKEN UNLESS THEY CAN ARTICULATE A CAUSAL
19 RELATIONSHIP THAT ESTABLISHES THAT SOMETHING THAT THE
20 BANK DID OR IS SOMEHOW CAUSALLY CONNECTED TO THE LOSS IN
21 VALUE OF THEIR HOME.
22 YOU KNOW, WHEN YOU LOOK AT — WE HAVE
23 SEVERAL DIFFERENT KINDS OF BORROWERS HERE AND WE WON’T
24 GO INTO THE DETAILS OF THEM, BUT SOME ARE NEW HOMEOWNERS
25 WHO USED PURCHASE MONEY LOAN. OTHERS ARE REFINANCERS
26 WHO ALREADY HAD THE HOME.
27 YOU KNOW. CERTAINLY WITH THE BORROWERS WHO
28 PURCHASE THE HOME, IF WE THINK ABOUT HOW THE PURCHASE
48
1 PROCESS TYPICALLY GOES, THE BORROWER DECIDES ON A
2 PURCHASE PRICE WELL BEFORE WE GET TO THE BANK FOR AN
3 APPRAISAL OR WHETHER THEY QUALIFY ULTIMATELY BASED ON
4 THE LOAN THEY ARE GOING TO TAKE OUT.
5 SO THAT’S A FREE MARKET THAT’S DECIDING THE
6 PURCHASE PRICES. NOT WHAT THE BANK’S DOING WITH RESPECT
7 TO WHETHER THEY DECIDE TO PURCHASE THE HOME AT THAT
8 PRICE.
9 THE COURT: BUT THEIR PLEADING ALLEGATIONS ARE
10 AMBITIOUS OR ROBUST ENOUGH TO SAY THAT THE FREE MARKET
11 WAS ESSENTIALLY IN A GENERAL SENSE DISTORTED BY THE
12 CONDUCT OF THESE DEFENDANTS, DISTORTING THE ENTIRETY OF
13 THE MARKET THROUGH INFLATING REAL ESTATE PRICES.
14 ESSENTIALLY, WHEN YOU WENT INTO THE STORE EVERYTHING WAS
15 MISS PRICED. SO PICKING BETWEEN SEVEN DIFFERENT ITEMS
16 TRYING TO FIND THE RIGHT LOAF OF BREAD, HYPOTHETICALLY,
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17 WHEN THEY ARE ALL MIS-PRICED, YOU ARE STILL GOING TO GET
18 THE WRONG PRICE ON A LOAF OF BREAD WHEN YOU PICK LOAF
19 SIX OUT OF SEVEN, INSTEAD OF LOAF THREE OUT OF SEVEN,
20 BECAUSE THE DEFENDANT’S CONDUCT HAS MIS-PRICED
21 EVERYTHING.
22 CORRECT, MR. SPIVAK?
23 MR. SPIVAK: YES, YOUR HONOR.
24 THE COURT: I MEAN, IT’S AN AMBITIOUS ASSERTION OF
25 ALMOST GLOBAL POWERS BY THE DEFENDANTS, BUT HAVING DARED
26 TO PLEAD THAT THIS IS WHAT HAPPENED, THEY SORT OF GET
27 PAST SOME OF THESE SMALL PROBLEMS THAT WOULD OTHERWISE
28 HAVE A CERTAIN LOGIC IF WE WERE DEALING WITH A SMALL
49
1 PART OF THE ORDINARY MARKET WITH ADAM SMITH’S INVISIBLE
2 HAND EFFECTIVELY AT WORK.
3 MR. KLEIN: YOUR HONOR, THE PROBLEM IS STILL IS
4 THAT THE CAUSAL CONNECTION IS BROKEN, BECAUSE WE ALL ARE
5 IN THE SAME — SOME OF US ARE ALL IN THE SAME BOAT.
6 HOMEOWNERS THAT TOOK OUT — THAT BOUGHT HOMES OR OWNED
7 HOMES AND DIDN’T BUY IT, DIDN’T TAKE OUT A LOAN, THEY
8 OWNED THEM SINCE 1985, WHATEVER IT MAY BE.
9 THE COURT: WELL, THEIR SERENDIPITY IS THEY
10 ENTERED INTO A COMMERCIAL RELATIONSHIP WITH COUNTRYWIDE,
11 WHICH GIVES THEM SOME KIND OF NEXUS IN WHICH TO LITIGATE
12 IS, CONCEDEDLY, WOULD BE HARDER TO FIGURE OUT WHY YOU
13 COULD SUE COUNTRYWIDE, APART FROM CONFLICT ISSUES, JUST
14 BECAUSE YOUR HOME HAS LOST VALUE COMPARED TO WHAT YOU
15 PAID FOR IT IN 2007, HYPOTHETICALLY.
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16 MR. KLEIN: BUT THE DARROW CASE ACTUALLY HITS
17 THAT HOME SAYING WHERE TWO PARTIES CAN SUFFER THE SAME
18 HARM — AND I CAN GIVE THE COURT THE PAGE NUMBER CITE.
19 THE COURT: PLEASE.
20 MR. KLEIN: 151 CAL.APP.4TH. THE CASE CITE IS
21 1079, THE PAGE NUMBER OF THAT EXCERPT IS 1099.
22 I THINK IT’S A PROBLEM, AND I’LL LEAVE THAT
23 PART OF IT AND GO ONTO THE NEXT ISSUE, WHICH IS EQUALLY
24 DIFFICULT.
25 THE COURT: I WILL ASK PLAINTIFFS TO RESPOND TO
26 THE SPECIFIC POINT, NOT JUST DARROW, BUT TO THE POINT
27 MR. KLEIN HAS BEEN MAKING. NOT NOW, BUT WHEN YOU GET
28 YOUR CHANCE TO SPEAK. MAKE NOTES TO YOURSELVES.
50
1 MR. KLEIN: THE NEXT ELEMENT OF THIS IS ALSO, AS
2 I UNDERSTAND IT, PART OF THE PLAINTIFF’S CLAIM IS THAT
3 THEY ARE ALLEGING THAT THE MORTGAGES WITH THE BANK AND
4 SOMEHOW THIS SECURITIZATION PROCESS, AND THIS GOES TO
5 17200 WITH THE M.E.R.S. ISSUE AND THE PATRIOT ACT ISSUE,
6 FIRST OF ALL, WHAT IS THE CONNECTION?
7 THERE IS NO CONNECTION, YOUR HONOR, BETWEEN
8 M.E.R.S. AND WHETHER THESE BORROWERS CAN PAY THEIR
9 MORTGAGES. THE FACT THAT M.E.R.S. IS ON A DEED OF TRUST
10 DOESN’T CHANGE WHETHER THESE BORROWERS CAN PAY THEIR
11 MORTGAGE OR NOT. AND THE SAME THING IS TRUE FOR THE
12 PATRIOT ACT. WHERE THESE FUNDS COME — THEY ALLEGE THEY
13 COME FROM SOME NEFARIOUS SOURCE, BUT WHERE THOSE FUNDS
14 COME DON’T AFFECT WHETHER THESE BORROWERS CAN PAY THEIR
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15 MORTGAGES OR GO INTO DEFAULT.
16 AND THAT, YOUR HONOR, IS PROVEN IN TWO
17 DIFFERENT WAYS. ONE, IN THE GENERAL BORROWING PUBLIC,
18 PARTICULARLY WITH RESPECT TO THE BANK, THERE’S OVER 85
19 PERCENT OF THE BORROWERS ARE CURRENT ON THEIR MORTGAGE.
20 IF EVERYONE — IF IT — IF EVERYONE HAS M.E.R.S. ON
21 THEIR MORTGAGE AND IT APPEARS A LARGE PART OF THEM DO,
22 BASED ON THE SLICE HERE BEFORE THE COURT, EVERYONE WOULD
23 HAVE TO HAVE BEEN AFFECTED SO THAT THEY COULDN’T PAY
24 THEIR MORTGAGE.
25 AND THE SAME THING IS TRUE, EVEN IN THIS
26 CASE, YOUR HONOR, WHERE I THINK COUNSEL HERE EVEN
27 EARLIER TODAY —
28 THE COURT: SAVE YOUR GESTURES FOR THE COURT, NOT
51
1 YOUR ADVERSARY.
2 MR. KLEIN: I’M SORRY.
3 THE COURT: THIS ISN’T JURY CLOSING ARGUMENT.
4 MR. KLEIN: I’LL GO LIKE THIS.
5 THE COURT: OR JUST STAY ON YOUR SIDE OF THE
6 COUNSEL TABLE.
7 MR. KLEIN: THE — WHERE YOU GET TO THE PARTIES
8 IN THIS CASE, COUNSEL THIS MORNING INDICATED THAT OVER
9 50 PERCENT OF THE BORROWERS IN THIS CASE ARE CURRENT ON
10 THEIR MORTGAGE.
11 AND SO, THERE’S A MAJOR BREAK IN THE CAUSAL
12 LINK TO ALLEGE THAT ANY OF THE HARM — ANY OF THE
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13 MISCONDUCT SET FORTH IN THE THIRD AMEND COMPLAINT IS
14 SOMEHOW RELATED TO EITHER THESE BORROWERS’ LOSS IN THE
15 VALUE OF THEIR HOME OR THEIR INABILITY TO PAY THEIR
16 MORTGAGE. IT’S JUST NOT THERE.
17 AND I THINK THE FACT THAT THERE ARE THESE
18 TWO TYPES OF PEOPLE, PEOPLE CURRENT ON THEIR MORTGAGE
19 AND PEOPLE WHO AREN’T CURRENT ON THEIR MORTGAGE AND
20 THERE’S PEOPLE WHO HAVE LOANS WITH THE BANK WHO HAVE
21 LOST THE VALUE ON THEIR HOME, AND THERE ARE PEOPLE
22 WITHOUT LOANS WITH THE BANK HAVE LOST VALUE ON THEIR
23 HOME, IT MAKES THE BANK NOT A SUBSTANTIAL FACTOR IN THE
24 HARM ALLEGED, WHICH IN OUR VIEW, YOUR HONOR, MAKES THE
25 17200 CLAIM AND THE CONCEALMENT CLAIM FAIL AS A MATTER
26 OF LAW AT THE PLEADING STAGE.
27 THE COURT: THE FACT THAT THE SAME ALLEGED HARM
28 HAS BEEN PERPETUATED ON ADDITIONAL PEOPLE THEN SAVE THE
52
1 BANK FROM EXPOSURE TO THE PEOPLE WITH WHOM IT HAD A
2 RELATIONSHIP?
3 MR. KLEIN: NO. THERE ARE PEOPLE HERE WHO HAVE A
4 RELATIONSHIP WITH THE BANK AND THERE ARE PEOPLE WHO
5 DON’T. I’M WILLING TO SUBMIT TO THE COURT THAT THERE
6 ARE SUBSTANTIALLY MORE PEOPLE WHO DON’T HAVE THE
7 MORTGAGE WITH THE BANK THAN THERE ARE THAT DO.
8 AND THOSE PEOPLE HAVE SUFFERED THE SAME
9 LOSS. WITHOUT HAVING ANY INTERACTION WITH THE BANK.
10 AND IF WE ARE BOTH PARTIES — AND I USE THAT DESCRIBING
11 THE TWO DIFFERENT KINDS OF PEOPLE, WITH THE BANK AND
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12 WITHOUT THE BANK, ARE SUFFERING THE SAME HARM, IT BREAKS
13 THE CAUSAL LINK. AND SO, AS A MATTER OF LAW —
14 THE COURT: IF I RULE AGAINST YOU THIS IS SOME OF
15 THE ARGUMENT YOU HAVE TO TRY OUT ON THE COURT OF APPEAL.
16 MR. KLEIN: I — AND, YOUR HONOR, WHICH I
17 APPRECIATE YOU MENTIONING THAT, IF THE COURT IS INCLINED
18 TO RULE AGAINST US, WE WOULD RESPECTFULLY REQUEST THE
19 COURT CERTIFY THIS PORTION OF THE DECISION FOR THE COURT
20 OF APPEAL AS WELL. I DON’T —
21 THE COURT: I PLAN TO DO SO. IT’S THAT IMPORTANT,
22 I MEAN, IN ALL CANDOR, WHETHER THESE MAKE GOOD COMMON
23 LAW TORT CLAIMS OR NOT, IT IS SOMETHING WE NEED TO KNOW
24 ABOUT BECAUSE IT’S SO IMPORTANT FOR CASE VALUATION.
25 MR. KLEIN: I WILL RESERVE THE REST OF MY TIME,
26 YOUR HONOR, UNLESS I’M MISSING THE POINT HERE, BUT I
27 THINK THEY ARE GOING TO KICK ME UNDER THE TABLE, I’LL
28 PROBABLY LOSE A TOE.
53
1 THE COURT: THAT’S WHY YOU WERE GOING TO THE OTHER
2 SIDE.
3 MR. KLEIN: IT’S SAFER OVER THERE.
4 I’LL RESERVE MY TIME AND THEN I’LL — I MAY
5 HAVE MORE TO ADD, BUT I’LL LET COUNSEL ADDRESS THE
6 ISSUES THAT WE’VE DISCUSSED AND COME BACK. AND I THINK
7 THERE MAY BE AN OPPORTUNITY FOR SOME ADMINISTRATIVE
8 ISSUES IF THERE ARE ISSUES TO BE RAISED, WE ARE HAPPY TO
9 ADDRESS THOSE AS WELL.
10 THE COURT: OKAY.
11 MR. SPIVAK: THANK YOU, YOUR HONOR. AND MR. KLEIN
12 CAN HAVE HIS RESERVE TIME AFTER I’M DONE WITH MY PART OF
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13 THE TIME.
14 THE COURT: DO YOU WISH TO SHARE YOUR TIME WITH
15 ANY OF YOUR COHORTS AMONGST THE PLAINTIFF’S COUNSEL,
16 JUST SO I KNOW IN ADVANCE?
17 MR. SPIVAK: NOT RIGHT NOW, BUT I MAY GIVE
18 MR. STEIN PART OF MY TIME. LIKE IN CONGRESS, IN FIVE OR
19 TEN MINUTE INCREMENTS.
20 THE COURT: BUT THE JUDGE IS NOT ALWAYS AS
21 COOPERATIVE AS THE SPEAKER OF THE HOUSE.
22 MR. SPIVAK: I WILL KEEP IT WITHIN MY 40 MINUTES,
23 AND I DIDN’T TAKE MR. KLEIN AS CEDING ANY OF HIS 40
24 MINUTES, I WAS JUST INTERRUPTING HIS 40 MINUTES.
25 OKAY. I DIDN’T FINISH GOING THROUGH SOME
26 OF YOUR HONOR’S DISCUSSION THIS MORNING AND I THINK I’M
27 GOING TO PERHAPS WORK THE TWO IN TOGETHER. BUT MAYBE
28 I’LL START WITH SOME OF THE THINGS MR. KLEIN HAS SAID.
54
1 INTERESTINGLY ENOUGH, MR. KLEIN HAS MADE
2 TWO SIGNIFICANT OBSERVATIONS TODAY THAT WERE NOWHERE IN
3 THEIR PAPERS. THEY WERE NOT IN THE DEMURRER, THEY WERE
4 NOT IN THEIR REPLY, THEY WERE NOT IN THEIR FEDERAL —
5 MOTION TO DISMISS, THEY ARE NEW.
6 THE FIRST BEING THAT THERE IS A BROAD BASED
7 IMMUNITY TO BANKS, THAT THEY ARE NOT LIABLE FOR FRAUD OR
8 DECEIT. THEIR PAPERS HAVE ACTUALLY HAD A MUCH NARROWER
9 VERSION. THEY CITED ONE CASE IN THEIR PAPERS, NOT THE
10 THREE OR FOUR THAT WERE MENTIONED TODAY, WHICH I WASN’T
11 ABLE TO WRITE DOWN BECAUSE THEY WERE SAID TOO QUICKLY.
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12 THEY HAVE CITED ONE CASE HAVING TO DO WITH
13 A LOAN APPLICATION, HAVING TO DO WITH THE DECISION THAT
14 ABSENT SPECIAL CIRCUMSTANCES, THE BANK WASN’T LIABLE FOR
15 THE AFFORDABILITY OF A LOAN.
16 THE COURT: THAT WAS PERLAS VERSUS GMAC.
17 MR. SPIVAK: YES. AND, INTERESTINGLY IN THEIR
18 FEDERAL COURT 12(B)6 MOTION, THEY CITED EXACTLY ONE
19 CASE, IT WAS A FEDERAL CASE, THAT MORE OR LESS SAID THE
20 SAME THING.
21 SO I JUST DON’T KNOW WHERE THIS 30-YEAR
22 HISTORY OF ASSERTING THAT BANKS ARE IMMUNIZED FROM
23 COMMON LAW OR STATUTORY LAW. I’VE CERTAINLY NOT SEEN
24 ANY CASE THAT SAYS THAT. I’VE SEEN CASES THAT SAY,
25 ABSENT SPECIAL CIRCUMSTANCES, OR NYMARK, WHICH IS A CASE
26 DEALING WITH THE LIABILITY OF A BANK FOR
27 MISREPRESENTATION AND FRAUD. I THINK ONE USES SPECIAL
28 CIRCUMSTANCES, THE OTHER ONE USES CONVENTIONAL
55
1 CIRCUMSTANCES, AND OTHER THAN CONVENTIONAL
2 CIRCUMSTANCES, THAT A BANK IS NOT LIABLE FOR COMPUTING
3 THE AFFORDABILITY OF ITS CUSTOMERS’ LOANS.
4 I MEAN, THERE’S CLEARLY CASES THAT SAY
5 THAT. THAT’S WHAT CASES SAY, THEY DON’T — IF YOU WILL,
6 IT’S A QUALIFIED, LIMITED — I DON’T EVEN KNOW IF IT’S
7 IMMUNITY. IT’S A QUALIFIED, LIMITED STATEMENT THAT A
8 BANK’S NOT LIABLE FOR ONE ACTIVITY, IN NORMAL
9 CIRCUMSTANCES.
10 WHAT WE HAVE HERE, NOT ONLY FALLS INTO THE
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11 EXCEPTION FOR NOT NORMAL CIRCUMSTANCES, BUT IT AT MOST
12 OVERLAPS THAT ONE LITTLE ISSUE WHERE MAYBE BANKS
13 SOMETIMES AREN’T LIABLE. AND, AS I SAID, THERE’S NEVER
14 BEEN AN ARGUMENT MADE IN ANY PAPER I’VE EVER SEEN IN
15 THIS CASE BEFORE OR AFTER I JOINED IT ABOUT A GLOBAL
16 30-YEAR IMMUNIZATION OF BANKS FROM LIABILITY FOR
17 DECEIVING PEOPLE OR DEFRAUDING PEOPLE.
18 LET’S TALK ABOUT WHAT WE HAVE, WHY WE ARE
19 IN THIS SPECIAL CIRCUMSTANCE EXCEPTION. WE ARE IN THIS
20 SPECIAL CIRCUMSTANCE EXCEPTION BECAUSE WHAT THEY ALL
21 TALK ABOUT, WHAT THE CASES TALK ABOUT IS A BANK ACTING
22 ONLY IN THE TRADITIONAL ROLE OF LENDER.
23 WHAT WE HAVE ALLEGED, AND AT DEMURRER
24 STAGE, WHAT WE HAVE ALLEGED IS TAKEN AS TRUE — WHAT WE
25 HAVE ALLEGED IS A SCHEME IN WHICH THE PLAINTIFFS WERE
26 THE PAWNS, THEY WERE THE FODDER, FOR THE SCHEME TO SELL
27 SECURITIZED MORTGAGE OBLIGATIONS AT HIGH VALUE.
28 THE BANKS WERE NOT ACTING AS BANKS IN THE
56
1 CONVENTIONAL ROLE OF BANKS GIVING MORTGAGES AND
2 RECEIVING INTEREST AND FEES FOR GIVING MORTGAGES. THEY
3 WERE USING THESE PLAINTIFFS AS PAWNS.
4 WE ALLEGE THAT THEY KNEW SINCE 2004 THAT
5 THIS WOULD LEAD TO THE DEMISE OF THEIR BANK AND TO THE
6 DECLINE IN MORTGAGE VALUES, WHICH WE HAD SEEN AS A
7 RESULT OF THE LIQUIDITY CRISIS CAUSED BY THEIR BANK.
8 THEY DIDN’T CARE. THE BANK’S C.E.O.; THE
9 BANK’S C.F.O.; THE BANK’S C.O.O., OTHER BANK OFFICERS
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10 WERE ENGAGED IN INSIDER TRADING, CHARGES THEY HAVE JUST
11 RECENTLY SETTLED WITH THE FCC ON THE CIVIL SIDE. THEY
12 WERE ENGAGED IN THE SALE OF SECURITIZED MORTGAGE
13 OBLIGATIONS AND DEFRAUDING INVESTORS FOR WHICH THEY HAVE
14 BEEN SUED REPEATEDLY BY STATES ATTORNEYS GENERAL, BY THE
15 FCC AND IN PRIVATE ACTIONS.
16 AND OUR CLIENTS WERE THEIR PAWNS. AND THAT
17 IS NOT A BANK ACTING IN THE CONVENTIONAL ROLE OF BANK.
18 BIZZARELY, IN THE REPLY TO THE OPPOSITION
19 ON THE DEMURRER, THE DEFENDANTS SAID THAT WE WERE
20 SOMEHOW ARGUING THIS EXCEPTION MEANT THAT THERE WAS A
21 FIDUCIARY RELATIONSHIP. THEY SAID THAT WE’D WRITTEN
22 THAT THIS HAD CREATED A FIDUCIARY RELATIONSHIP. WE
23 NEVER SAID ANYTHING OF THE KIND. WE KNOW THERE WAS NO
24 FIDUCIARY RELATIONSHIP.
25 WHAT WE HAVE SAID, WHAT LI MANDRI SAYS,
26 WHAT NYMARK SAYS, WHAT WARNER SAYS IS THAT THERE ARE
27 EXCEPTIONS UNDERSTAND 1572, 1709; 1710, THE DECEIT AND
28 FRAUD STATUTES.
57
1 THERE ARE EXCEPTIONS AS TO WHEN CONCEALMENT
2 OR FRAUD, WHEN THERE ARE DUTIES NOT TO CONCEAL, NOT TO
3 DEFRAUD. AND ONE OF THE TIMES THAT DUTY EXISTS IS IN A
4 FIDUCIARY RELATIONSHIP. ANOTHER TIME THAT DUTY EXISTS
5 IS WHEN ENTERING INTO A CONTRACT. ANOTHER TIME THAT
6 DUTY EXISTS IS WHEN MAKING A PARTIAL DISCLOSURE.
7 ANOTHER TIME THAT DUTY EXISTS IS WHEN
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8 MAKING AN INACCURATE DISCLOSURE TO SOMEONE WHO IS NOT IN
9 POSSESSION OF THE SAME FACTS YOU ARE IN POSSESSION OF.
10 LIKE THAT YOU ARE ENGAGED IN A SCHEME TO LIE ABOUT THE
11 QUALITY OF YOUR MORTGAGES, ASSEMBLE THEM INTO
12 COLLATERALIZED MORTGAGE OBLIGATIONS AND SELL THEM AT A
13 FRAUDULENT VALUE, KNOWING THAT IN THE PROCESS YOU ARE
14 GOING TO DESTROY THE MORTGAGE MARKET AND CREATE A
15 LIQUIDITY CRISIS.
16 THAT IS WHAT WE HAVE ALLEGED. NOT A
17 FIDUCIARY RELATIONSHIP, WHICH NOT ONCE APPEARS IN OUR
18 OPPOSITION. AND AS I SAY JUST APPEARED — THEY CREATED
19 A STRAWMAN AND ARGUED AGAINST IT. THEIR ARGUMENT
20 AGAINST THE STRAW WAS PROBABLY CORRECT, JUST NOT WHAT WE
21 ALLEGED.
22 THERE’S A DUTY. THE DUTY IS CREATED BY THE
23 INACCURATE DISCLOSURES, THE PARTIAL DISCLOSURES; BY
24 BEING IN POSSESSION OF INFORMATION THAT THE PLAINTIFFS
25 WERE NOT IN POSSESSION OF, AND BY ENTERING INTO A
26 CONTRACT UNDER 1572.
27 THERE IS NO CASE I HAVE SEEN, THERE IS NO
28 CASE CITED BY THE BANK, WHICH I THINK IS A SUM TOTAL OF
58
1 TWO CASES ONE IN THE FEDERAL CASE AND ONE IN THE STATE
2 CASE, BUT IF I’M MISTAKEN, NO OTHER CASES THAT THEY
3 CITED THAT I’VE LOOKED AT THAT SAYS THAT 1572 DOES NOT
4 APPLY TO BANKS.
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5 SO, I THINK WE SHOULD JUST TAKE THAT, IF
6 YOU WILL, OFF THE TABLE AND I FRANKLY THINK —
7 THE COURT: WHAT ABOUT HIS CAUSATION ARGUMENT?
8 MR. SPIVAK: I’M GOING TO TURN TO THAT.
9 THE SECOND ARGUMENT THAT NEVER APPEARS IN
10 THEIR DEMURRER OR REPLY, BRAND NEW ARGUMENT TODAY,
11 DOESN’T MAKE IT RIGHT OR WRONG, BUT IT’S CERTAINLY NOT
12 SOMETHING WE BRIEFED. BUT LET’S TALK ABOUT THE
13 CAUSATION ARGUMENT.
14 FIRST HE SAYS THESE ARE SOPHISTICATED,
15 COMPLICATED MATTERS OF CAUSATION. THAT’S NORMALLY WHAT
16 I’D BE SAYING TO ARGUE AS TO WHY THE DEMURRER IS THE
17 INAPPROPRIATE STAGE IN WHICH TO RESOLVE THE MATTER.
18 IT’S A SOPHISTICATED, COMPLICATED MATTER. WE AGREE IT’S
19 A SOPHISTICATED, COMPLICATED MATTER.
20 SECOND, HE MAKES THE ARGUMENT THAT
21 NON-COUNTRYWIDE CUSTOMERS MAY ALSO HAVE BEEN DAMAGED BY
22 COUNTRYWIDE’S IMPROPER ACTIVITIES AND THAT THEREFORE
23 THOSE WHO MAY HAVE A CAUSE OF ACTION BECAUSE THEY
24 ENTERED INTO A CONTRACT AND THEY CAN USE 1572 OR FOR
25 SOME OTHER REASON SHOULDN’T HAVE THEIR DAY IN COURT
26 BECAUSE THE PERSON WHO DIDN’T ENTER INTO THE CONTRACT
27 MIGHT NOT ALSO HAVE HIS DAY IN COURT.
28 NOW, I DON’T REPRESENT ANYONE AGAINST
59
1 COUNTRYWIDE WHO DIDN’T HAVE A CONTRACT WITH COUNTRYWIDE,
2 SO I’VE NEVER EVALUATED WHETHER THAT OTHER PERSON MIGHT
3 NONETHELESS HAVE A CAUSE OF ACTION UNDER 1709 OR 1710,
4 THOUGH NOT UNDER 1572 AND, PERHAPS HE DOES, AND PERHAPS
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5 HE DOESN’T.
6 IF THE COURT WANTS ME TO FIGURE OUT MY
7 ANSWER I WILL, BUT I DON’T REPRESENT THOSE PEOPLE.
8 THE COURT: LIFE’S TOO SHORT.
9 MR. SPIVAK: I DO KNOW THE FACT THAT COUNTRYWIDE
10 MAY HAVE HURT SOMEONE ELSE AND THAT OTHER PERSON CAN’T
11 SUE COUNTRYWIDE, IF THAT’S THE CASE, DOESN’T MEAN MY
12 CLIENT IS DEPRIVED OF HIS DAY IN COURT BECAUSE HE
13 FORTUITOUSLY WAS INDUCED INTO ENTERING INTO A CONTRACT
14 CLEARLY GIVING HIM CAUSES OF ACTION FOR CONCEALMENT;
15 SUBJECT TO YOUR HONOR’S POINT — WELL, CAUSES OF ACTION
16 FOR FRAUD IF PROPERLY ALLEGED AND PROVEN, YOUR POINT ON
17 THE SECOND AND THIRD CAUSES OF ACTION; AND CAUSES OF
18 ACTION UNDER THE U.C.L..
19 BREAK IN CAUSATION DOES NOT OCCUR BECAUSE
20 SOMEONE ELSE WAS ALSO HARMED WHO MAY NOT HAVE STANDING
21 TO BRING A CASE ALLEGING HIS HARM.
22 OUR CLIENTS ENTERED INTO CONTRACTS WITH
23 COUNTRYWIDE. UNDER THOSE CONTRACTS THEY PAID INTEREST
24 AND FEES TO COUNTRYWIDE. I DON’T EVEN UNDERSTAND, WHICH
25 MAY BE MY NAIVETE, WHY THERE’S ANY DOUBT THAT IN A
26 RESTITUTIONARY POOL AND A BASIS FOR RESTITUTIONARY
27 DAMAGES, THE BANK IN THEIR RESPONSE SAID, YEAH, BUT WE
28 GOT THOSE INTEREST PAYMENTS, THEY ARE OURS.
60
1 YEAH, BUT IF WE ARE RIGHT, THEY GOT THOSE
2 INTEREST PAYMENTS IN — BY VIOLATING A NUMBER OF LAWS
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3 AND STATUTES THEY SHOULD NOT HAVE VIOLATED. THEY STOLE
4 IT FAIR AND SQUARE, NOW GIVE IT BACK.
5 AND IF WE PROVE THEY STOLE IT FAIR AND
6 SQUARE, THEY SHOULD GIVE IT BACK. AND IF WE DON’T PROVE
7 IT, THEN THEY WILL KEEP IT. BUT THAT’S THE
8 RESTITUTIONARY POOL. THE INJUNCTIVE RELIEF WE HAVE
9 ALREADY TALKED ABOUT OR LOSS OF MONDAY OR PROPERTY.
10 THE COURT: WHAT ABOUT THE ONE TASK I PROPOSE TO
11 PUT UPON YOU, WHICH IS TO TRY TO GIVE ME THE WHO, WHAT,
12 WHERE, WHEN FOR THE SECOND AND THIRD CAUSE OF ACTION?
13 MR. SPIVAK: OKAY. TURNING TO THAT, YOUR HONOR, I
14 WANT TO COMBINE THAT WITH THE ISSUE OF THE PRE-2005 —
15 THAT THERE ARE SOME PLAINTIFFS, NO ONE SUPPLIED A LIST
16 SO WE DON’T HAVE OUR THEIR NAMES WITH US, THERE ARE SOME
17 PLAINTIFFS WHO, WE SUGGESTED WE SUSPEND PURSUING THE
18 SECOND AND THIRD CAUSES OF ACTION ON BEHALF OF, AND
19 YOUR HONOR —
20 THE COURT: AND THE FIRST.
21 MR. SPIVAK: NO, NO. BECAUSE OF CONCEALMENT,
22 MAYBE — NO, YOUR HONOR, NOT THE FIRST.
23 THE COURT: YOU DIDN’T PROPOSE TO SUSPEND THE
24 FIRST.
25 MR. SPIVAK: SECOND AND THIRD, BECAUSE CONCEALMENT
26 WAS OCCURRING IN 2004 — CONCEALMENT WAS THE
27 NON-STATEMENT. THE DIFFERENCE OR A DIFFERENCE BETWEEN
28 THE FIRST CAUSE OF ACTION, THE SECOND AND THIRD, IS THE
61
1 FIRST TALKED ABOUT WHAT SOMEONE DIDN’T SAY WHEN UNDER A
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2 DUTY TO SAY IT.
3 THE DUTY COMING —
4 THE COURT: WHEN THEY ALREADY, IN YOUR VIEW OF AS
5 AN ADVOCATE —
6 MR. SPIVAK: YES.
7 THE COURT: — KNEW THEY WERE COMMENCING TO ENGAGE
8 IN FRAUDULENT CONCEALMENT.
9 MR. SPIVAK: YES. THE TACK ALLEGES THAT THEY KNEW
10 AND ENGAGED IN THE CONCEALMENT FROM 2004. THE TACK DOES
11 NOT ALLEGE WITH PARTICULARITY ANY AFFIRMATIVE
12 MISREPRESENTATIONS MADE 2004. HENCE THE 2005 ISSUE
13 UNDER THE SECOND AND THIRD CAUSES OF ACTION RAISED BY
14 THE DEFENDANTS, AND WE ACKNOWLEDGE THAT THAT ISSUE DOES
15 EXIST UNDER THE SECOND AND THIRD CAUSES OF ACTION.
16 OUR PROPOSED RESOLUTION WAS SUSPENSION.
17 YOUR HONOR INSTEAD SAID, “INTERESTING, MAYBE IT DOESN’T
18 EXIST, DISMISS WITHOUT PREJUDICE, AND IF YOU FIND IT
19 COME BACK.”
20 YOUR HONOR, WE’D LIKE TO PROPOSE A THIRD
21 ALTERNATIVE. YOUR HONOR WANTS GREATER PARTICULARITY AS
22 TO THE PLAINTIFFS AND ROES TO BE ADDED AS TO WHERE THEY
23 RELY, EVEN POST 2005. THEY MAY HAVE RELIED BECAUSE THEY
24 DID, IN FACT, OWN COUNTRYWIDE STOCK AND DID READ THE
25 10-K OR 10-Q. YOUR HONOR SAID PROBABLY NOT TRUE OF 249,
26 IT’S TRUE WHATEVER IT’S TRUE OF. WE UNDERSTAND THE
27 ISSUE. OTHERS MAY HAVE HAD OTHER REPRESENTATIONS.
28 WE’D LIKE TO TAKE IT AS OUR JOB IN AMENDING
62
1 THE SECOND AND THIRD CAUSES OF ACTION TO DO TWO THINGS.
2 IT’S REALLY ONE THING: SHOW THE RELIANCE FOR THOSE WHO
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3 GOT THEIR LOANS BEFORE 2005, WE’D HAVE TO FIGURE OUT THE
4 LIST OURSELVES SO THAT DEFENDANTS DON’T HAVE TO.
5 FOR THOSE WHO GOT THEIR LOANS BEFORE 2005,
6 IF WE CANNOT FIND ADDITIONAL SECURITIES FILINGS TO SHOW
7 THEY READ IT, THEN WE BETTER SHOW SOMETHING ELSE THEY
8 RELIED ON OR WE WILL DISMISS THOSE PLAINTIFFS FROM THE
9 SECOND AND THIRD CAUSE OF ACTION.
10 SIMILARLY, FOR ANY OF THE PLAINTIFFS WHO
11 MAY HAVE GOTTEN THEIR LOAN IN 2005 OR ’06, EVEN THOUGH
12 THERE WERE A MILLION OF THESE SECURITIES FILINGS, IF WE
13 CANNOT BY INTERVIEWING THEM, GETTING THE FACTS, TIE IT
14 BACK, WE’LL DISMISS AS TO THOSE AS WELL.
15 SO WE’D LIKE TO TAKE THIS AS A SINGLE JOB
16 THAT SAYS TO US, TO DO OUR JOB PROPERLY WE HAVE TO ADD
17 AS MANY AS 249, PLUS WHEN WE ADD THE ROES, WHATEVER
18 NUMBER. 800 MORE PARAGRAPHS, YOU KNOW, ONE PARAGRAPH
19 PER PLAINTIFF SAYING — I THINK THIS IS WHAT YOUR HONOR
20 WANTS —
21 THE COURT: I SAT THERE FOR HOURS READING YOUR
22 PLEADING, FORTUNATELY, I WAS IN A PLEASANT CHAIR IN
23 FRONT OF THE FIRE, UP IN THE SNOWY MOUNTAINS, LAST
24 WEEKEND, BUT IT WAS TEDIOUS, BUT IT’S THE NATURE OF THE
25 BEAST, IF ALL THESE PLAINTIFFS HAVE THEIR OWN
26 INDIVIDUALIZED FRAUD CLAIM.
27 MR. SPIVAK: I THINK IT’S LIKE THE VERY LENGTHY
28 200 PARAGRAPHS AT THE BEGINNING, WE NEED A LENGTHY —
63
1 AND TO THE EXTENT WE CAN’T, BY INTERVIEWING OUR CLIENT,
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2 COME UP WITH A PROPER PARAGRAPH FOR EACH CLIENT, WE WILL
3 DISMISS, AT LEAST AT THIS POINT WITHOUT PREJUDICE.
4 THE COURT: WOULD THE SAME BE TRUE OF THE SUBSET
5 OF THE 64 WHO IN THE NEAR TERM SEEM TO HAVE ORIGINATED
6 WITH PEOPLE YOU ARE PREPARED TO CONCEDE DON’T SEEM TO BE
7 CO-CONSPIRATORS SUCH AS HSBC?
8 MR. SPIVAK: YES, YOUR HONOR. WE HAVE TRIED TO —
9 WE DIDN’T HAVE WITH US A COPY OF THE EXHIBIT 1, BECAUSE
10 OF THE SCHEDULE DIDN’T HAPPEN, WE WILL IN THE NEXT DAY
11 OR TWO WHEN — WE’VE HAD A CONVERSATION WITH COUNSEL —
12 WE WILL PROPOSE TO THEM A LIST OF THOSE WE ARE GOING TO
13 DISMISS WITHOUT PREJUDICE NOW.
14 THE COURT: YOUR REPLEADING CAN GET TO THE SAME
15 PARTIES. IT TAKES PRECISION, WHICH FOR WHATEVER LUCKY
16 PERSON AMONGST THE FOUR OF YOU, OR SOME OTHER SOUL YET
17 TO BE ROPED INTO THE EXERCISE —
18 MR. SPIVAK: IT WILL BE MR. TOMASZEWSKI AND
19 MISS JONES.
20 THE COURT: — HAVING TO BE EVER SO PRECISE ABOUT
21 IT, BUT, YOU KNOW, IT WILL ONLY BE 410 PAGES LONG AS A
22 PLEADING.
23 MR. SPIVAK: RIGHT. AND WHAT WE’RE GOING TO DO,
24 YOUR HONOR, IS THERE WILL BE SOME NUMBER, I DON’T KNOW
25 IF IT’S 5 OR 20, WE WILL DISMISS THOSE WITHOUT PREJUDICE
26 NOW.
27 MR. KLEIN DOESN’T AGREE WITH THE PROCESS AS
28 TO THE OTHER 44, BUT HE UNDERSTANDS AND HE KNOWS WE’LL
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64
1 GET AT LEAST SOME OF THEM OUT OF THE CASE NOW, WITHOUT
2 PREJUDICE.
3 WE MAY EVEN, ON THOSE WHO ARE NOT HSBC, WE
4 MAY EVALUATE SOME OF THE OTHERS WE HAVE —
5 THE COURT: BEFORE WE’RE DONE, I ALSO WANT TO HEAR
6 FROM BOTH YOU AND MR. KLEIN ON WHAT IF ANYTHING IS
7 HAPPENING ON THE ONE-OFF PERSON BY PERSON ATTEMPTS AT
8 LOAN MODIFICATIONS OR OTHERWISE.
9 YOU PROBABLY HAVE DIFFERENT VIEWS AS IN, WE
10 GAVE THEM ALL OF THE INFORMATION THEY WANT AND THEY
11 WON’T TALK TO US. OR, WE ARE WAITING TO HEAR FROM
12 PLAINTIFFS AND THEY WON’T GIVE US ANYTHING.
13 BUT I’LL TAKE EACH OF YOUR VERSIONS OF
14 WHAT’S HAPPENING, BECAUSE IF I WERE A BETTING MAN, WHICH
15 IS DANGEROUS AS A JUDGE, I’D STILL GUESS THAT THE ODDS
16 ARE BETTER THAN 50 PERCENT THAT MANY OF THE CLAIMS IN
17 THIS CASE WILL BE WORKED OUT BY INDIVIDUAL COMPROMISES
18 OR SMALL GROUP PACKAGE COMPROMISES, BUT I HAVEN’T SEEN
19 THAT PROCESS START FLOWING YET.
20 I KNOW AN ANTICIPATED MOTION FOR
21 PRELIMINARY INJUNCTION IS ANTICIPATED IN THE NOT TOO
22 DISTANT FUTURE AND PERHAPS THAT WILL FOCUS THE MIND OF
23 ONE OR BOTH SIDES. BUT I AM EVER SO HOPEFUL AS A CASE
24 MANAGEMENT TO TRY TO CREATE BEHAVIORS WHERE THIS BEGINS
25 TO BECOME, NOT JUST A MIRAGE ON THE HORIZON BUT AN
26 ACTUAL WELL FROM WHICH PEOPLE ARE DRINKING, AND ONCE
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27 THEY START DRINKING, PERHAPS THOSE ARE RESOLUTIONS
28 SUFFICIENT TO SOME, IF NOT ALL OF THE PLAINTIFFS. AND
65
1 IF IT’S SUFFICIENT TO THOSE PLAINTIFFS, THEN PRESUMABLY
2 WE MAY ACTUALLY PROVIDE PRACTICAL JUSTICE THAT SERVES
3 YOUR CLIENTS AND THEREFORE ACTUALLY MOVES THE CASE
4 FORWARD TO A PRACTICAL RESOLUTION WITHOUT MAKING IT A
5 HIGH STAKES POKER IN FRONT OF A JURY IN TWO OR THREE
6 YEARS.
7 MR. SPIVAK: YOUR HONOR, WHEN WE GET TO THAT
8 POINT, I’M GOING TO YIELD PART OF MY TIME TO
9 MR. MR. STEIN AND MISS JONES, WHO IN OUR GROUP HANDLE
10 THAT.
11 THE COURT: FOR THAT I’M HAPPY TO, AS THE SPEAKER,
12 CONDONE THAT.
13 MR. SPIVAK: OKAY. TO CONTINUE FOR A MOMENT —
14 THE COURT: ANY TIME YOU ARE TALKING COMPROMISE,
15 I’LL BE VERY COOPERATIVE.
16 MR. SPIVAK: GOOD. TO CONTINUE FOR A MOMENT —
17 THE COURT: SO YOU ARE PREPARED TO AMEND THE
18 SECOND AND THIRD CAUSES OF ACTION.
19 MR. SPIVAK: WE ARE PREPARED TO AMEND THE SECOND
20 AND THIRD CAUSES OF ACTION. WE’D LIKE TO INCLUDE WITH
21 THAT THE ISSUE OF THE PRE-2005, AND WE WILL DISMISS AT
22 THIS STAGE WITHOUT PREJUDICE, SHOULD DISCOVERY ASSIST US
23 LATER ON, WE’LL DISMISS WITHOUT PREJUDICE ANY OF THOSE
24 FOR WHOM WE CAN’T MAKE THE SPECIFIC ALLEGATION UNDER
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25 RELIANCE, WHICH WOULD THEREFORE MEAN ON THE PRE-2005
26 ORIGINATIONS, IT WOULD INCLUDE SHOWING WHAT THEY RELIED
27 ON. AND IF WE CAN’T FIND WHAT THEY RELIED ON THEN WE
28 WILL NOT BE ABLE TO ALLEGE RELIANCE.
66
1 THE COURT: I DEDUCE CORRECTLY THAT THERE’S NO
2 FIGHT ABOUT THE 5TH CAUSE OF ACTION?
3 MR. SPIVAK: THERE IS NOT.
4 THE COURT: SO FAR THE REST OF THE TENTATIVE IS IN
5 YOUR FAVOR, UNLESS I’M MISSING SOMETHING.
6 MR. SPIVAK: ONE POINT ON 2923.5, YOUR HONOR.
7 THE COURT: AS TO A FEW PEOPLE.
8 MR. SPIVAK: YES. AS TO THOSE FEW PEOPLE,
9 ALTHOUGH THEY MAY HAVE CURRENTLY, VOLUNTARILY RESCINDED
10 THE NOTICES OF DEFAULT, THEY DID VIOLATE, IN OUR VIEW,
11 THE STATUTE AND THE RELIEF OF THE VIOLATION OF THE
12 STATUTE IS AN INJUNCTION, NOT A VOLUNTARY RESCISSION
13 THAT THEY CAN AT ANY POINT CHOOSE TO UNRESCIND. AND IF
14 THEY WOULD ACCEPT THE VOLUNTARY ENTRY OF AN INJUNCTION,
15 WE WOULD BE HAPPY TO DISMISS AS TO THOSE FIVE OR SIX
16 PEOPLE.
17 BUT IF THEY ARE NOT GOING TO ACCEPT THAT,
18 WE DON’T WANT A SITUATION WHERE THEY JUST ISSUE ANOTHER
19 NOTICE AND WE ARE BACK IN THE SAME SITUATION, BECAUSE
20 THEY HAVE ONLY DONE SOMETHING VOLUNTARILY.
21 THE COURT: WELL, WHERE IS THE CURRENT VIOLATION?
22 IF THERE’S NO NOTICE OF FORECLOSURE IN THE ABSENCE OF
23 THE RIGHT OF THE MEET AND CONFER?
24 MR. SPIVAK: THE —
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25 THE COURT: MAYBE YOU HAVE THE THEORETICAL CLAIM
26 FOR A SUIT FOR DECLARATORY RELIEF AS TO THAT, BASED ON
27 THE RECENT EXPERIENCE AND THE FEAR THAT IT MIGHT OCCUR
28 AGAIN.
67
1 MR. SPIVAK: I THINK IT’S NOT JUST THEORETICAL,
2 YOUR HONOR, I THINK WE DO. AND I’M JUST AS HAPPY TO NOT
3 EXPAND THE LITIGATION. IF THEY ARE SAYING THEY ARE NOT
4 GOING TO PURSUE THESE FIVE — I THINK IT’S FIVE PEOPLE,
5 THEN THEY HAVE SHOULD ACCEPT, VOLUNTARILY ACCEPT THE
6 ENTRY OF AN INJUNCTION. IT CAN BE LIMITED IN NATURE,
7 NOT GO INTO ANYONE ELSE, AND WE MOVE ON FROM THOSE
8 PEOPLE.
9 THE COURT: I GUESS PRESUMPTIVELY IT’S NOT AN
10 INJUNCTION TO WITHHOLD FORECLOSURE, IT IS ONLY AN
11 INJUNCTION TO FORECLOSURE AFTER THE MEET AND CONFER
12 PROCESS HAS OCCURRED.
13 MR. SPIVAK: RIGHT. AND WE ARE THE COUNSEL FOR
14 THESE PEOPLE, SO WHAT 2923.5 REQUIRES IS THAT THEY FIRST
15 PROCEED TO CONSULT WITH THE CLIENT OR THEIR COUNSEL,
16 WE’RE THEIR COUNSEL, AND REALLY ALL THEY WOULD HAVE TO
17 DO IS CONSULT WITH US.
18 THE COURT: I’LL HEAR FROM YOUR ADVERSARY BEFORE
19 WE WRAP IT UP TODAY.
20 SO ON THAT, THE COURT’S TENTATIVE IS NOT
21 AGREEABLE TO YOU.
22 OKAY, YOU WANT TO DEFER TO THE PEACEMAKERS
23 AMONGST YOUR TEAM?
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24 MR. SPIVAK: NO, I JUST —
25 THE COURT: BLESSED ARE THE PEACEMAKERS.
26 MR. SPIVAK: THE ISSUE THAT THERE’S NO PROTECTION
27 IN M.E.R.S. IN THE PATRIOT ACTS AND WHETHER OF
28 PLAINTIFFS DO OR DON’T PAY THEIR MORTGAGES AS RELATES TO
68
1 THE U.C.L., IT’S NOT THE WAY THE U.C.L. WORKS.
2 THE WAY THE U.C.L. WORKS IS THAT YOU
3 ESTABLISH THERE’S A VIOLATION OF LAW THAT RELATES TO THE
4 INTERACTS BETWEEN THE PARTIES AND YOU CAN THEN EITHER
5 ENJOIN THE VIOLATION OR YOU OBTAIN RESTITUTIONARY
6 DAMAGES.
7 SO, IF BECAUSE OF THE PATRIOT ACT THEY MADE
8 MORTGAGE LOANS WITH MONEY THEY SHOULD NOT HAVE HAD, OR
9 IF IN VIOLATION OF M.E.R.S. THEY HAVE ASSIGNED OR
10 TRANSFERRED MORTGAGES OR ARE ATTEMPTING TO FORECLOSE
11 WITHOUT OWNERSHIP, THOSE ALONG WITH THE LIST OF — I
12 DON’T KNOW, 10 OR 15 OTHER VIOLATIONS THAT ARE IN THE
13 8TH CAUSE OF ACTION, ARE ALL APPROPRIATE, AND IT’S
14 SOMETHING TO DO WITH THIS CAUSATION CHAIN, WHICH DOESN’T
15 MAKE SENSE.
16 AND I HAVE ONE LAST COMMENT ONLY BEFORE I
17 DEFER.
18 THE COURT: THE ONE RESPONSE I’LL MAKE WHICH IS
19 MORE FOR MR. KLEIN’S EARS, THAN YOURS, BUT CONCEPTUALLY
20 SPRINGS FROM WHAT YOU JUST SAID.
21 AS I UNDERSTAND IT, GIVEN THAT AT LEAST AT
22 A THEORETICAL LEVEL, ALL OF THE LOANS ORIGINATED WITH
23 COUNTRYWIDE OR PERHAPS ON REPLEADING WE’LL DISCOVER THAT
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24 A SUBSTANTIAL SUBSET OF THE PLAINTIFF’S LOANS ORIGINATED
25 WITH COUNTRYWIDE. I DON’T UNDERSTAND COUNTRYWIDE, WHICH
26 IS A FICTITIOUS ENTITY WITH SHELL OIL OWNERSHIP TO THE
27 OPEN MARKET, S.E.C. REGISTRATION AND ALL THE REST, WAS
28 ITSELF A LENDER THEN AT THE TIME OF LOAN ORIGINATION
69
1 VIOLATING THE PATRIOT ACT.
2 BUT WHAT I POSIT MAY EXIST THROUGH THE LACK
3 OF TRANSPARENCY OF M.E.R.S. IS BY THE TIME THE LOANS
4 ORIGINATED BY COUNTRYWIDE GET COLLATERALIZED AND PUSHED
5 THROUGH M.E.R.S. TO MULTIPLE DIFFERENT FINGERS, THE
6 DAY-TO-DAY, HOUR-TO-HOUR, MINUTE-TO-MINUTE IDENTITY
7 WHICH IS NOT KNOWN BECAUSE OF THE LACK OF TRANSPARENCY,
8 THAT THERE IS THE THEORETICAL POSSIBILITY THAT
9 INAPPROPRIATE LENDERS HAVE BOUGHT THE PAPER AND
10 THEREFORE BECOME THE OWNERS OF THE PAPER; BUT, AS SUCH,
11 ARE NOT ALLOWED PURSUANT TO THE PATRIOT ACT, TO EXERCISE
12 CREDITORS RIGHTS, BECAUSE THEY ARE NOT PROPER HOLDERS OF
13 THE PAPER.
14 AND THAT DOESN’T GIVE EVERY BORROWER A
15 DEBTOR’S HOLIDAY, AS I UNDERSTAND IT, BUT IT PRESUMABLY
16 BURDENS THE CREDITOR WITH DEMONSTRATING THE NEGATIVE
17 PREGNANT PROPOSITION WHICH IS THAT THE CURRENT HOLDER,
18 AND PERHAPS EVERYBODY IN THE CHAIN OF OWNERSHIP, HAS
19 BEEN A PROPER OWNER, NON-VIOLATIVE OF THE PATRIOT ACT,
20 AND TO, ESSENTIALLY FORCE TRANSPARENCY WHERE M.E.R.S.
21 DOES NOT CONTEMPLATE IT, SO THAT AT THE TIME ONE DOES
22 EXERCISE CREDITOR’S RIGHTS, ONE CAN DEMONSTRATE THAT
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23 THERE’S NOT A PATRIOT ACT PROBLEM, WHICH IS A NICE HOOP
24 TO FORCE YOUR ADVERSARY THROUGH, BECAUSE THEY HAVEN’T
25 STRUCTURED THEIR ORGANIZATION TO DO THAT SO FAR.
26 AND, PRESUMABLY, IT MIGHT MAKE THEM A
27 LITTLE MORE MALLEABLE IN MANY REGARDS. BUT,
28 THEORETICALLY. IF AND WHEN THEY COULD DEMONSTRATE AS TO
70
1 A GIVEN LOAN, THAT IT WAS HELD BY A SWISS BANK — WELL,
2 THAT MAY BE A POOR EXAMPLE — WAS HELD BY J. P. MORGAN
3 CHASE OR THE INDIANA TEACHERS PENSION FUND, OR BILL AND
4 LINDA GATES FOUNDATION, THAT THAT WOULD DEMONSTRATE
5 THOSE ARE PERMISSIBLE CREDITORS WHO MAY FORECLOSURE.
6 BUT IF THEY WERE TO DEMONSTRATE THAT THIS
7 IS ACTUALLY OWNED BY OSAMA BIN LADEN FOR THE BENEFIT OF
8 AL-QAEDA, THAT THAT WOULD ACTUALLY THEN LET US TUMBLE TO
9 THE FACT THAT THAT LOAN ESSENTIALLY HAS BEEN LOST AND
10 THE BORROWER HAS GOT A BANK HOLIDAY THROUGH THEIR DUMB
11 LUCK OF HAVING THE WRONG PERSON BUY THEIR PAPER.
12 MR. SPIVAK: YOUR HONOR, WHAT YOU HAVE SAID IS
13 PROBABLY 97 PERCENT ALMOST WHAT I WOULD HAVE SAID IN
14 EXPLAINING THE ISSUE.
15 THE COURT: CORRECT ME OR EDUCATE ME.
16 MR. SPIVAK: THE OTHER THREE PERCENT IS — YOU
17 KNOW, WE ARE BEGINNING TO SEE WHAT WE’VE BEEN THROWING
18 AROUND IS ALMOST THE ENRONIZATION, THE ENRONIZATION OF
19 THE BANKING INDUSTRY IN THE COUNTRYWIDE PERIOD, THE
20 SELLING OF COLLATERALIZED LOANS; SOME PERHAPS TO
21 OFF-SHORE MONIES AND FUNDS; PERHAPS THE BUYING INTO AND
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22 THE SELLING OF INTEREST IN THOSE OFF-SHORE MONIES AND
23 FUNDS AND IT’S SOMETHING THAT DISCOVERY MAY HELP US
24 DEVELOP AND THAT I DON’T WANT TO SPEND A LOT OF TIME ON
25 BECAUSE WE’RE NOT YET AT THE POINT WHERE WE WOULD, YOU
26 KNOW, ASK TO AMEND AND PUT IT IN A COMPLAINT. BUT IT’S
27 SOMETHING THAT EVEN THE LIMITED DISCOVERY WE’VE BEEN
28 GIVEN HAS RAISED SOME CONCERNS.
71
1 THE ISSUE THAT’S A LITTLE BIT DIFFERENT IS
2 THAT EVEN COUNTRYWIDE FROM THE BEGINNING WAS SELLING THE
3 SECURITIZED MORTGAGE OBLIGATIONS AND TRANSACTIONS THAT
4 INVOLVED MONEY GOING BACK AND FORTH, AND THAT TOO IS
5 SUBJECT TO THE PATRIOT ACT.
6 THERE’S ALSO SOMETHING THAT DROPS OUT, IT
7 WAS IN THE AMENDED COMPLAINT, THE TRUTH IN LENDING ACT,
8 WHICH ALSO PERTAINS TO SOME OF THIS. SO EVERYTHING
9 YOUR HONOR SAID IS RIGHT, BUT I THINK WE MAY DISCOVER
10 THAT THE PATRIOT ACT PROBLEMS ACCELERATED IN CONNECTION
11 WITH THE BANK OF AMERICA MERGER, AND ACCELERATED LATER
12 INTO THE PERIOD, BUT THAT THEY BEGAN BACK IN THE
13 COUNTRYWIDE ERA. MAYBE NOT AS FAR AS BACK AS 2004, BUT
14 AS WE ENTER 2005, 2006.
15 THE COURT: BUT IF ALL THIS COLLATERALIZED DEBT OR
16 FROM A CREDITOR’S POINT OF VIEW, ASSET MOVES BACK AND
17 FORTH BETWEEN THE INDIANA TEACHERS PENSION FUND, J. P.
18 MORTGAGE CHASE, THE GATES FOUNDATION AND SOME FARMER IN
19 NEBRASKA, HYPOTHETICALLY, AND OTHER PEOPLE WHO ARE
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20 CREDITORS UNDER THE PATRIOT ACT, IS THERE ANY FURTHER
21 PROBLEM OR IS IT JUST THE FACT THAT M.E.R.S.’ LACK OF
22 TRANSPARENCY MEANS WE DON’T KNOW THAT THAT’S THE
23 UNIVERSE THAT OWNS THIS PAPER.
24 MR. SPIVAK: AS WE SIT HERE TODAY, YES, WE DON’T
25 KNOW. BUT YOU ASKED IS THERE ANY FURTHER PROBLEM? A
26 VIOLATION OF THE PATRIOT ACT, IT’S LIKE NOT FILING YOUR
27 TAXES. IF YOU DON’T FILE YOUR TAXES, BUT YOU DIDN’T OWE
28 ANY TAXES IS THERE ANY FURTHER PROBLEM?
72
1 THE ANSWER IS YES. THE MERE FACT YOU
2 DIDN’T FILE YOUR TAXES VIOLATES THE LAW. YOU ARE
3 SUBJECT TO A FINE, THOUGH NOWHERE NEAR AS HIGH AS IF YOU
4 OWED TAXES.
5 THE COURT: SO THE PATRIOT ACT IN YOUR VIEW
6 REQUIRES DISCLOSURE FROM TIME TO TIME, OF WHO THE REAL
7 OWNER OF THE DEBT IS?
8 MR. SPIVAK: IT REQUIRES DUE DILIGENCE AS TO WHO
9 MONEY IS COMING FROM AND WHO THE REAL OWNER OF THE DEBT
10 IS. IT REQUIRES CERTAIN REPORTS THOUGH NOT ALWAYS
11 PUBLIC REPORTS, THEY MAYBE REGULATORY REPORTS. IT
12 PROHIBITS TAKING MONEY FROM PEOPLE ON VARIOUS LISTS FROM
13 WHICH MONEY CANNOT BE TAKEN.
14 THE COURT: SO YOU START WITH THE PREMISE THAT YOU
15 LOOK AT THE NOMINEE AND NOT LOOK PAST THE NOMINEE, IN
16 YOUR VIEW, A VIOLATION IS MADE OUT BY THAT, IF NOTHING
17 MORE.
18 MR. SPIVAK: YES, YOUR HONOR.
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19 THE COURT: OKAY. I WANT TO HEAR FROM THE
20 PEACEMAKERS.
21 MR. SPIVAK: EXCUSE ME?
22 THE COURT: I WANT TO HEAR FROM THE PEACEMAKERS.
23 MR. SPIVAK: YES, I JUST WANTED TO MAKE SURE OF
24 ONE THING AND THEN I THINK THE PEACEMAKERS CAN GET UP.
25 THE COURT: NOW WE’VE ROLLED THE ARMAMENT THROUGH
26 RED SQUARE, AND I’D LIKE TO HEAR FROM THE PEACEMAKERS ON
27 THE PLAINTIFFS SIDE.
28 MR. STEIN: YOUR HONOR, THANK YOU FOR ALLOWING
73
1 THE UNUSUAL CIRCUMSTANCES OF TWO PLAINTIFFS LAWYERS
2 ARGUING. IT IS A COMPLEX CASE.
3 THE COURT: I GET CONFUSED AT TIMES, I CONFESS.
4 MR. STEIN: I EXPECT TO TALK FOR 5 TO 7 MINUTES.
5 AND ALTHOUGH WHAT I HAVE TO SAY AT THE BEGINNING WILL
6 APPEAR ADVOCATIVE, IT IS ABSOLUTE —
7 THE COURT: I WOULDN’T EXPECT LESS FROM YOU, SIR.
8 MR. STEIN: THANK YOU, YOUR HONOR.
9 IT IS ABSOLUTELY DESIGNED TO IDENTIFY THOSE
10 PLAINTIFFS AND ROE PLAINTIFFS, THAT WE KNOW, THAT WISH
11 TO MAKE PEACE AND THAT PEACE COULD BE MADE WITH.
12 BUT BEFORE WE MAKE PEACE, WE HAVE TO
13 IDENTIFY WHAT IS IN FRONT — WHAT THE PROBLEM IS OR WHAT
14 I THINK IS THE HURDLE TO MAKING PEACE. AND THEN I WILL
15 DESCRIBE THE ROAD THAT I THINK WE CAN GO ON TO STOP —
16 THE CASE STARTED WITH 20 PEOPLE AND NOW IT’S 300, AND
17 THERE ARE 150 MILLION PEOPLE IN THE UNITED STATES OUT OF
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18 A POPULATION OF 300 MILLION THAT ARE IN DEFAULT AND ARE
19 SCHEDULED FOR FORECLOSURE.
20 THE COURT: NOT 150 MILLION.
21 MR. STEIN: 150 MILLION. AND I WILL PROVIDE — I
22 WILL —
23 THE COURT: 150 MILLION RESIDENTIAL REAL ESTATE
24 PEOPLE —
25 MR. STEIN: NOT RESIDENTIAL REAL ESTATE.
26 THE COURT: YOU’VE GOT EVERY TOM, DICK AND HARRY
27 CREDIT CARD.
28 MR. STEIN: NO. THESE ARE ALL MORTGAGES, WHETHER
74
1 THEY BE RESIDENTIAL, MULTIPLE RESIDENTIAL PROPERTIES,
2 SECONDS ON PROPERTIES, ETCETERA.
3 THE COURT: I FIND THE NUMBER 150 MILLION
4 IMPLAUSIBLE, BUT SINCE WE’RE DEALING WITH THINGS NOT ON
5 THE RECORD, LET’S HAVE A WHIRL OF IT.
6 MR. STEIN: WE CAN CUT THE NUMBER IN HALF TO
7 75 MILLION, WHICH IS A NUMBER REPORTED BY BANKS, SO, AND
8 WE CAN LODGE THAT WITH THE COURT.
9 BECAUSE OF THAT NUMBER, SHEER NUMBER, IT
10 IS — THE ADVOCATIVE ARGUMENTS THAT THERE ARE OTHER
11 FINANCIAL INSTITUTIONS AND PEOPLE ARE IN DEFAULT OF
12 THEIR MORTGAGE AND ON THEIR FINANCIAL INSTITUTIONS,
13 WELL, IT’S HARD TO IMAGINE THAT IF COUNTRYWIDE IS
14 SECURITIZING AND GETTING MARKET SHARE IN 2004 AND MAKING
15 MONEY, THAT ANOTHER BANK SUCH AS WELLS FARGO IS NOT
16 GOING TO FIGURE OUT HOW TO DO IT, TOO.
17 THE BROKERS WORK FOR BOTH BANKS AND SO
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18 THERE ARE NATURALLY, BANKS ACROSS THE BOARD THAT ARE
19 DOING THIS.
20 WHEN, THIS MORNING, THE MASSACHUSETTS
21 FEDERAL COURT FOLLOWED THE MASSACHUSETTS SUPREME COURT
22 AND SAID THAT THE OWNER OF THE MORTGAGE IS THE ONE WHO
23 HAS TO FORECLOSE, AND I UNDERSTAND MR. KLEIN INDICATED
24 THAT’S MASSACHUSETTS, NOT CALIFORNIA. BUT WE ALSO HAVE
25 THE EASTERN DISTRICT BANKRUPTCY COURT IN CALIFORNIA,
26 NEITHER OF WHICH ARE BINDING ON THIS COURT, BUT
27 EVENTUALLY ENOUGH DOMINOES FALL AND IT IS WHAT IT IS.
28 I FIND THAT I, AT THIS POINT. AFTER THE
75
1 COURT HAS BEEN INVOLVED IN THE CASE FOR A SIGNIFICANT
2 PERIOD OF TIME, SOMETIMES I LEARN MORE FROM LISTENING TO
3 THE COURT FROM THE RESEARCH ITS DONE AND READING THE
4 PAPERS, THAN THINKING ALOUD TO MYSELF, PARTICULARLY THIS
5 MORNING.
6 YOUR HONOR, THE PROCESS OF THE ONE-OFF,
7 WHICH IS SPECIFICALLY WHAT THE COURT ASKED ME TO
8 ADDRESS, BECOMES MORE DIFFICULT. I THINK THERE IS A
9 SINGLE HURDLE, AND THAT HURDLE IS THAT IF, IN FACT, IT
10 ALWAYS SHOULD HAVE BEEN TRANSPARENT — AND I’M NOT GOING
11 TO ADVOCATE THAT, EITHER — EITHER IT WAS SUPPOSED TO BE
12 TRANSPARENT OR IT WASN’T. BUT IF IT WAS AND THESE
13 PEOPLE LITIGATED IN GOOD FAITH BECAUSE IT WASN’T,
14 BECAUSE THEY WENT TO MODIFY, AND IF YOU READ THE
15 LEGISLATIVE HISTORY OF 2923.5, THEY ARE SAYING TO BANKS,
16 GET TRANSPARENT NOW. THESE FORECLOSURES ARE GOING TO
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17 RUIN THE STATE OF CALIFORNIA.
18 AND THEY HAVE. AND THE COURT HAS SAID,
19 LEGISLATION MAY BE ISSUED. AND IT MIGHT. OKAY, BUT
20 RIGHT NOW WE ARE IN A COURT OF LAW.
21 IF TWO YEARS HAVE PASSED AND IF THESE
22 PEOPLE HAVE BEEN LITIGATING FOR TWO YEARS, WHICH THEY
23 HAVE, AND THEN WITH A LOT OF THEM, THERE ARE TWO YEARS
24 OF BACK DUE PAYMENTS; BACK DUE INTEREST; BACK DUE
25 PRINCIPL. IN THEORY, ON THE BANK’S SIDE, WHICH THE BANK
26 WILL BRING TO THE TABLE DAY ONE, THEY WILL SAY, THIS —
27 THE COURT: AND THE LATE CHARGES AND THE OTHER
28 NUISANCE CHARGES THAT RAMP IT UP QUICK.
76
1 MR. STEIN: CORRECT. THIS IS WHAT YOU OWE, HOW
2 ARE YOU GOING TO PAY IT? IF THAT’S THE DISCUSSION, I’M
3 SURE THE COURT CAN UNDERSTAND, IF A HUMAN BEING READS
4 THE MASSACHUSETTS SUPREME COURT OPINION AND THE FEDERAL
5 COURT OPINION THAT CAME OUT TODAY, AND THEY READ THIS
6 TRANSCRIPT, WHERE MR. KLEIN SAYS IT’S NOT BINDING IN
7 CALIFORNIA, WHICH IS CORRECT, BUT THOSE HUMAN BEINGS ARE
8 GOING TO SAY, WELL, IT’S STILL THE UNITED STATES OF
9 AMERICA. IT’S STILL A SUPREME COURT OPINION, IT’S NOT A
10 LOWER COURT OPINION.
11 AND THEY WOULD SAY, WHY AM I SITTING HERE
12 WITH THEM, BEING ASKED FOR A CHECK FOR $300,000,
13 400,000 — 2 MILLION FOR SOME OF THE PLAINTIFFS.
14 THAT’S A HURDLE. IT’S AN EASY HURDLE TO
15 JUMP OVER. WITH SOME OF THESE HOLDERS OF HOMES THAT
16 WISH TO STAY IN POSSESSION, TO THE EXTENT THE BANK CAME
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17 IN WITH SOMEONE WITH THE AUTHORITY THAT SAID, LOOK, WE
18 UNDERSTAND RIGHT NOW, WE SAY IT’S POTATO, YOU SAY IT’S
19 POTATO, NOW IT’S OBVIOUS THAT THIS IS A REAL DONNIE
20 BROOK ACROSS THE UNITED STATES.
21 IT’S NOT — NO FRIVOLOUS ARGUMENTS ARE
22 BEING MADE. I’M SURE THE MASSACHUSETTS SUPREME COURT,
23 MR. KLEIN WOULD SAY IS NOT A FRIVOLOUS THING. OKAY?
24 SO, IT’S A DONNIE BROOK.
25 SO GIVEN THAT, WE WISH TO COMPROMISE. SO,
26 ACCORDINGLY, IF YOU TAKE THOSE PAYMENTS OWED, YOU PUT
27 THEM ON THE BACK END OF THE MORTGAGE; WE REAMORTIZE THE
28 MORTGAGE; SOME PEOPLE MAY NEED TO GO THROUGH A
77
1 FORECLOSURE; IF THERE’S A REASONABLE, RATIONAL PERSON ON
2 THE BANK’S END, AND THE COURT SAYS, “ARE THERE
3 PLAINTIFFS THAT WOULD SIT AT THE TABLE AND SAY, YES,
4 YES, THAT’S WHAT I’M WAITING FOR.”
5 AND NOW THERE’S A NEW MORTGAGE, IT’S A NEW
6 FRESH MORTGAGE, IN WHAT TYPE OF INITIAL PAYMENT DO YOU
7 WANT?
8 COULD THAT HAPPEN ON A ONE-OFF BASIS? THE
9 ANSWER IS, YOUR HONOR, ABSOLUTELY. AND I THINK — WE
10 HAD MEETINGS REGARDING THIS. THEY ARE CONFIDENTIAL,
11 THERE WAS A CONFIDENTIALITY AGREEMENT WITH MR. KLEIN,
12 AND WE APPROACHED THIS AT THE BEGINNING OF THE CASE.
13 AT THE BEGINNING OF THE CASE, THE LAW
14 HADN’T DEVELOPED. IN FACT, AT THE BEGINNING OF THE
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15 CASE, AS THE COURT MAY RECALL, 2923.5 THERE WAS NO LAW
16 WHETHER THAT COULD BE A DAMAGES LAWSUIT OR NOT.
17 THE MABRY CASE MADE IT CLEAR THAT WAS ONLY
18 AN INJUNCTION STATUTE, ALTHOUGH THAT STATUTE BEFORE THE
19 NEXT HEARING MAY BE AMENDED, MAYBE IT WILL SAY SOMETHING
20 ELSE. I DON’T KNOW WHAT’S GOING TO HAPPEN.
21 BUT CERTAINLY, THERE ARE ONE-OFF PEOPLE,
22 THAT GIVEN A ROBUST DISCUSSION, UNDERSTANDING THERE’S A
23 DONNIE BROOK, WOULD HAVE THEIR CHECKBOOKS THERE AND BE
24 READY TO HAVE A FRESH MORTGAGE SIGNED TO STAY IN THEIR
25 HOUSE.
26 THE COURT: SO, TO CUT IT TO THE CHASE, IF THE
27 BANK GOT THE LATE CHARGES OFF THE TABLE, CROSSED THE
28 COLLECTION COSTS OFF THE TABLE, BANK ATTORNEY’S FEES OFF
78
1 THE TABLE, AND FOCUSED ON THE PRINCIPAL THAT REMAINS
2 UNPAID AND, AT LEAST FROM THE POINT OF VIEW OF THE
3 STARTING POINT FROM WHICH TO BARGAIN DOWN, THE ACCRUED
4 INTEREST ONLY WHICH WAS ON THE TABLE, THAT’S THE RIGHT
5 NUMBER TO START FROM AND THEN FIGURE OUT HOW TO TAKE A
6 SUBSTANTIAL BUT NOT ENTIRE PORTION OF THAT ACCUMULATED
7 DEBT AND REPACKAGE IT FOR PAYMENT IN AN ECONOMICALLY
8 VIABLE FASHION, OVER A LONGER PERIOD OF TIME, SO THAT
9 THE BORROWERS CAN ACTUALLY AFFORD TO DO THE DEBT
10 SERVICE.
11 MR. STEIN: WHICH IS A MUCH LESS VERBOSE
12 DESCRIPTION THAN I JUST GAVE AND MUCH MORE ACCURATE.
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13 THAT’S EXACTLY CORRECT.
14 THE COURT: YOUR LADY COLLEAGUE IS NODDING HER
15 HEAD AFFIRMATIVELY, SO PRESUMABLY SINCE SHE’S THE OTHER
16 PEACEMAKER, IT’S NOT TOO FAR OFF THE TARGET.
17 MR. STEIN: AND MISS JONES —
18 THE COURT: I’M TRYING TO QUANTIFY IT WITHOUT
19 ENDORSING IT FOR MR. KLEIN, BECAUSE IT WAS A LITTLE
20 PROLIX. AND SEEING IF I COULD CUT TO THE CHASE.
21 MR. STEIN: I APPRECIATE THAT, YOUR HONOR.
22 THE COURT: THAT’S NOT TO SAY THEY HAVE TO DO IT,
23 BUT IT’S ONLY TO TRY TO ENCAPSULATE WHAT IS ESSENTIAL
24 FROM YOUR SITUATION OF A PLAUSIBLE STARTING POINT.
25 MR. STEIN: THERE ARE CERTAINLY THOSE PLAINTIFFS
26 WHO WISH TO DO THAT. WE CAN — I REPRESENT TO THE COURT
27 AS AN OFFICER OF THE COURT —
28 THE COURT: ON MY WAY TO AND FROM THE SNOW, I
79
1 HEARD ONE OF YOUR COMPETITORS IN THE BAY AREA, “1800 ASK
2 STEVE” OR WHATEVER, RADIO ADS NON-STOP ON ONE RADIO IN
3 SACRAMENTO, JUST BEGGING YOU TO CALL FOR FREE LEGAL
4 ADVICE. AND THEN ON OCCASION, “UNITED LEGAL SERVICES” I
5 THINK WAS THE TRADE NAME, THEY HAD ANOTHER AD RUNNING
6 LOOKING TO HIRE LAWYERS, BUT BASICALLY WAS OFFERING
7 FORECLOSURE AVOIDANCE SERVICES.
8 MR. STEIN: WELL, IT’S LIKE A PLAGUE. IT’S TAKEN
9 OVER THE COUNTRY, SO IT’S HARD TO STOP.
10 BUT, YOUR HONOR —
11 THE COURT: BUT IT WASN’T YOUR OFFICE OR
12 MR. TOMASZEWSKI’S OFFICE OR MISS JONES, WHICH I TOOK AS
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13 A SIGN THAT AT LEAST YOU ARE SORT OF TRADITIONAL, LESS
14 STOREFRONT LAWYERS THAN “1800 ASK STEVE” OR WHATEVER
15 THAT WAS.
16 MR. STEIN: I’VE BEEN IN A COURTROOM BEFORE,
17 YOUR HONOR. YOUR HONOR, THERE ARE THOSE —
18 THE COURT: YOU HAD TO HAVE TWO YEARS LITIGATION
19 EXPERIENCE TO GET HIRED, ACCORDING TO THE RADIO AD.
20 MR. STEIN: I PRESUME THAT IS STANDARD, IF THE
21 COURT SAYS IT.
22 THE COURT: THAT WAS UNITED LEGAL’S THOUGHT BEFORE
23 THEY HIRED YOU AT THE JOB FAIR.
24 MR. STEIN: YOUR HONOR, WITH REGARD TO ONE-OFF,
25 THE ONE-OFF CONCEPT, OUTSIDE OF THE LOAN MODIFICATION,
26 THERE ARE PRIVACY CLAIMS, ETCETERA. THOSE PLAINTIFFS,
27 ALSO SOME OF THEM ARE WORN OUT BY THE TWO YEARS. AND
28 THOSE PLAINTIFFS ALSO COULD COME — COULD HAVE EXPRESSED
80
1 AN INTEREST IN COMPROMISING THEIR CLAIM.
2 FOR EVERY FIVE OF THOSE, AS THE CASE
3 PROCEEDS AND LAW DEVELOPS AROUND US, AND THE BANK IS
4 DOING ACTIVITIES THAT THEY ARE REPORTING AROUND US THAT
5 ARE SUPPORTING THE ALLEGATIONS THAT I STARTED MAKING TWO
6 YEARS AGO, WHEN NOBODY WAS SUING THE BANK, BUT I HAVE
7 REPRESENTED THESE BANKS GOING BACK 25 YEARS.
8 SO, THOSE PEOPLE, AS THE LAW DEVELOPS
9 AROUND THEM AND AS TWO YEARS PASSES, THOSE PEOPLE ARE
10 TIRED. THEY SAY, I’M OUT OF BREATH, I’M TIRED. BUT
11 THIS LAW KEEPS DEVELOPING I’M GOING TO STAND HERE. CAN
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12 WE TALK TO THE BANK? I CAN BE REASONABLE.
13 THE COURT: I HAVE TO SORT OF CUT YOU OFF.
14 MISS JONES, ANYTHING TO ADD OR TO CORRECT
15 ABOUT WHAT YOUR COHORTS JUST SHARED WITH ME?
16 MS. JONES: NOTHING FURTHER, YOUR HONOR.
17 THE COURT: MR. KLEIN, YOU’VE BEEN WAITING
18 PATIENTLY, SO I AM INTERESTED ON THE PEACEMAKING SIDE OF
19 THINGS, BUT YOU CAN RESPOND MORE GENERALLY BECAUSE I’M
20 CURRENTLY INCLINED TO STAND ON THE TENTATIVE EXCEPT THAT
21 AS TO THE 64 AND THE PRE-2005 CROWD, BY SUSTAINING WITH
22 LEAVE TO AMEND AS TO THE ENTIRETY OF THE SECOND AND
23 THIRD CAUSES OF ACTION.
24 I THINK THAT’S A SUFFICIENT BASIS ON WHICH
25 THEY CAN COME BACK AND COME TO GRIPS WITH IT. I’M
26 TRUSTING THAT AS OFFICERS OF THE COURT AS TO THE FIRST
27 CAUSE OF ACTION, THEY WOULD BE PREPARED TO BACK OFF THE
28 PEOPLE WHO REALLY DON’T HAVE A LOAN ORIGINATION CLAIM AS
81
1 AGAINST COUNTRYWIDE, BECAUSE THEY WANT TO MAINTAIN THE
2 COURT’S RESPECT THAT THEY RECOGNIZE THEIR DUTIES UNDER
3 CCP 128.7.
4 MR. KLEIN: YOUR HONOR, I’D LIKE TO SPEAK FOR TWO
5 OR THREE MORE MINUTES ON DUTY, WHICH IS A SUBJECT OF THE
6 CONCEALMENT CLAIM.
7 THE COURT: THAT AND ANYTHING ELSE YOU WANT TO
8 TALK ABOUT FOR THE NEXT 20 MINUTES.
9 MR. KLEIN: THANK YOU, YOUR HONOR. I’LL TRY NOT
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10 TO USE ALL THAT TIME.
11 DURING — AT SOME POINT, AND I CAN’T REALLY
12 IDENTIFY THE SPECIFIC POINT TODAY, THE BANK’S ARGUMENT
13 REGARDING NO DUTY TO THE BORROWERS HAS SOMEHOW BEEN
14 TRANSLATED INTO SOME SORT OF A REFERENCE TO SOME SORT OF
15 IMMUNIZATION.
16 THE COURT: I USED THE WORD.
17 MR. KLEIN: I AM NOT LOOKING TO ATTRIBUTE IT. I
18 APPRECIATE THAT.
19 THE ARGUMENT WE’VE MADE, YOUR HONOR, IS
20 THAT THE BANK OWES NO DUTIES TO THE BORROWER IN A
21 LENDER/BORROWER RELATIONSHIP.
22 AND —
23 THE COURT: IN REGARD TO THEORETICAL CLAIMS OR
24 FRAUDULENT CONCEALMENT.
25 MR. KLEIN: THEY OWE NO DUTIES TO A LENDER — TO
26 A BORROWER IN A LENDER/BORROWER RELATIONSHIP.
27 AND THAT IS THE CASE OF PRICE VIEWS WELLS
28 FARGO. IT IS ON PAGE 6 OF OUR DEMURRER. IT’S
82
1 REFERENCED THERE.
2 AND FROM THERE, AND THE BIGGEST PROBLEM I
3 THINK WITH THE CLAIM IS THAT IF THERE’S NO DUTY AND
4 THERE’S A LOT OF TALK ABOUT SPECIAL CIRCUMSTANCES THAT
5 MAY CAUSE A DUTY TO ARISE, NONE OF THEM HAVE BEEN PLED
6 IN THIS CASE.
7 YOU KNOW, IT’S INTERESTING THEY MENTION
8 PARTIAL DISCLOSURES, BUT THERE ARE NO PARTIAL
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9 DISCLOSURES THAT THESE BORROWERS HAVE ALLEGED TO HAVE
10 HEARD.
11 THEY MENTION OMISSIONS, THERE ARE NO
12 OMISSIONS THAT THESE BORROWERS — THESE BORROWERS HAVE
13 ALLEGED TO HAVE OCCURRED AT THIS POINT, THAT SOMEHOW
14 THEY RELIED UPON IN — WITH DETRIMENTAL RELIANCE.
15 THE COURT: YOU SAY PRICE V. WELLS FARGO SIMPLY TO
16 NEGATE THE PREMISE THAT YOU SET UP AS A FIDUCIARY DUTY.
17 MR. KLEIN: THE FOOTNOTE INDICATES FIDUCIARY
18 DUTY. IT ACTUALLY — IF THE WAGNER VERSUS BENSON CASE,
19 THE CRUZ VERSUS BANK OF AMERICA CASE, AND THE PRICE
20 VERSUS WELLS FARGO CASE — THE WELLS FARGO CASE ACTUALLY
21 CONTAINS THE WAGNER VS. BENSON CASE, AND I BELIEVE IT
22 ALSO CONTAINS THE CRUZ VERSUS BANK OF AMERICA CASE.
23 THE COURT: SO ALTHOUGH CRUZ AND WAGNER ARE NOT
24 CITED YOU ARE NOW RELYING ON THEM BECAUSE THEY ARE CITED
25 WITHIN PRICE.
26 MR. KLEIN: THEY ARE IN PRICE. AND THEY ARE
27 DISCUSSED IN PRICE. THOSE DO ESTABLISH THERE’S NO DUTY
28 TO A BORROWER IN A LENDER/BORROWER RELATIONSHIP.
83
1 THE COURT: NOT LIMITED TO FIDUCIARY DUTY, BUT NO
2 DUTIES WHATEVER, NO DUTIES IN NEGLIGENCE, NO DUTIES
3 ABOUT FRAUDULENT CONCEALMENT, NO DUTIES WHATSOEVER.
4 MR. KLEIN: NO DUTIES. THERE’S ABSOLUTELY NO
5 DUTIES, UNLESS THERE’S A STATUTE THAT PROVIDES A DUTY,
6 LIKE PERHAPS TRUTH IN LENDING, OTHERWISE THERE’S NO
7 DUTY. THERE’S NO DUTY OF CARE, NO DUTY TO DISCLOSE,
8 THERE’S NO DUTY.
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9 AND THE SPECIAL CIRCUMSTANCES AREN’T THE
10 KIND OF CIRCUMSTANCES WHERE THERE’S AN ALLEGATION THAT
11 THE BANK IS ENGAGING IN SOME MASSIVE SCHEME FRAUDULENT
12 SCHEME. THE SPECIAL CIRCUMSTANCES ARE WHEN PERHAPS THE
13 LENDER IS PERHAPS AN INVESTOR IN A VENTURE FINANCED BY
14 THE LOAN; OR WHEN THE BANK IS A TRUSTEE OF SOME SORT OF
15 TRUST OF SOME SORT, WHERE THE TRUST IS THE BORROWER.
16 THOSE ARE CIRCUMSTANCES WHERE PERHAPS A
17 DUTY MAY ARISE. BUT IT’S BASED ON DIFFERENT
18 RELATIONSHIPS BETWEEN THE BANK AND THE BORROWER. IT’S
19 NOT THAT THERE’S SOME FRAUDULENT SCHEME OUT THERE THAT’S
20 BEING ALLEGED.
21 IN FACT, LI MANDRI WHICH IS CITED IN OUR
22 PAPERS, REPUDIATES THE CONCEPT THAT THERE’S A DUTY TO
23 DISCLOSE THAT YOUR ENGAGING IN SOME SORT OF FRAUDULENT
24 OR SCHEME OR WRONGFUL CONDUCT.
25 THE COURT: HELP ME OUT. IS LI MANDRI IN THE
26 REPLY BRIEF? I DON’T SEE IT.
27 MR. KLEIN: I BELIEVE IT’S IN BOTH. BUT I’LL GET
28 THE COURT THE CITE.
84
1 IT’S NOT IN THE DEMURRER, SO IT MUST BE IN
2 THE REPLY BRIEF.
3 THE COURT: IT’S IN THE REPLY. V. JUDKINS.
4 MR. KLEIN: RIGHT. PAGE 3.
5 SO LI MANDRI HOLDS THAT YOU DON’T HAVE A
6 DUTY TO — YOU HAVE A DUTY NOT TO ENGAGE IN WRONGFUL
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7 CONDUCT, ARGUABLY, OR THERE’S A TORT THAT’S THE CONCEPT
8 OF THE TORT NOT TO ENGAGE IN WRONGFUL CONDUCT. BUT THEN
9 YOU’VE GOT TO PLEAD THE WRONGFUL CONDUCT.
10 BUT THE FACT THAT THERE’S SOME SORT OF
11 CONCEALMENT OR DUTY TO DISCLOSE YOU’RE ENGAGING IN
12 WRONGFUL CONDUCT, THAT’S ANOTHER STORY AND THAT DOESN’T
13 EXIST HERE. THERE’S NO FACTS TO ESTABLISH THAT THERE’S
14 A DUTY — THERE’S NO LAW TO ESTABLISH THAT THERE’S A
15 DUTY TO DISCLOSE OR ENGAGING IN WRONGFUL CONDUCT. WE’RE
16 JUST — THAT’S A DIFFERENT KIND OF TORT.
17 THAT IS PARTICULARLY TROUBLESOME IN THE
18 CONTEXT OF WHAT THESE BORROWERS ARE SEEKING TO DO WITH
19 RESPECT TO THESE 64-PLUS NUMBER OF BORROWERS WHO DIDN’T
20 ORIGINATE THEIR LOANS WITH THE BANK.
21 THEY ARE ALLEGING, NOT ONLY FIRST IN A
22 STRAIGHTFORWARD RELATIONSHIP, WHERE THE BANK ORIGINATES
23 A MORTGAGE THERE’S NO DUTY. BUT NOW THESE BORROWERS
24 WANT TO TAKE THAT EVEN — TAKE IT EVEN FARTHER AND SAY:
25 NOT ONLY DO YOU HAVE A DUTY UNSUPPORTED BY LAW WITH
26 RESPECT TO BORROWERS WHO ORIGINATE LOANS WITH YOU, BUT
27 NOW YOU HAVE A DUTY TO ANY OTHER BORROWER OUT THERE WHO
28 ORIGINATES A LOAN TO DISCLOSE SOMETHING.
85
1 THE COURT: NO, THEY SAY WITHIN UNIVERSE OF PEOPLE
2 WHO TOOK A LOAN THROUGH A LARGER VERSION OF THE CIVIL
3 CONSPIRACY.
4 MR. KLEIN: AND WHAT TRIGGERED THAT DUTY? THERE’S
5 NOTHING THAT TRIGGERS THAT DUTY.
6 THE COURT: THE DUTY WOULD RISE AND FALL UNDER THE
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7 SAME STANDARD.
8 MR. KLEIN: RIGHT —
9 THE COURT: WITH OR WITHOUT A CIVIL CONSPIRACY.
10 MR. KLEIN: RIGHT. EVEN A CIVIL CONSPIRACY, A
11 CIVIL — A CO-CONSPIRATOR HAS TO HAVE A DUTY.
12 THE COURT: I AGREE.
13 MR. KLEIN: SO I DON’T KNOW HOW — THEY JUST
14 CAN’T GET PAST THIS ISSUE WITH RESPECT TO THE BORROWERS
15 THAT ORIGINATED BY OTHER BANKS. THEY CAN’T EVEN GET IT
16 PAST IT, FRANKLY, WITH RESPECT TO AS — THE COMPLAINT AS
17 CURRENTLY PLED WITH RESPECT TO THE BORROWERS WHO DID
18 ORIGINATE WITH THE BANK.
19 SO, THAT’S TROUBLING. IN A SENSE THAT WE
20 BELIEVE THAT THE LAW IS WELL-ESTABLISHED. THERE’S NO
21 DUTY BETWEEN A BORROWER AND LENDER. I DON’T WANT TO GO
22 ON ANYMORE THAN THAT. I THINK THE COURT HAS PROBABLY
23 HEARD ENOUGH ON THAT PARTICULAR ISSUE.
24 THE COURT: I’M GOING TO LOOK AT THE CASES BEFORE
25 I FINALIZE MY RULINGS, SO I WANT YOU TO BE A LITTLE MORE
26 SUCCINCT SO I HAVE TIME TO PULL THE CASES OFF THE SHELF.
27 MR. KLEIN: I APPRECIATE THAT. THE ONE ISSUE I
28 WANT TO CORRECT WITH RESPECT TO MABRY IS THAT THERE’S
86
1 JUST A FLAT-OUT MISSTATEMENT ABOUT WHAT MABRY PROVIDES.
2 I THINK IT’S VERY IMPORTANT TO CLEARLY
3 COMMUNICATE, AS SET FORTH IN OUR PAPERS, WHAT THE LAW IS
4 ON MABRY AND WHAT MABRY ALLOWS. AND I WILL QUOTE IT
5 REALLY QUICKLY SO WE’RE CLEAR. IT DOES NOT AUTHORIZE AN
6 INJUNCTION AS IS ALLEGED BY THE PLAINTIFFS HERE.
7 WHERE IS MABRY? MABRY SPECIFICALLY SAYS
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8 THAT:
9 THE RIGHT OF ACTION IS LIMITED TO
10 OBTAINING A POSTPONEMENT OF AN IMPENDING
11 FORECLOSURE TO PERMIT THE LENDER TO COMPLY
12 WITH 2923.5.
13
14 THAT’S NOT AN INJUNCTION, IT’S THE
15 POSTPONEMENT OF A TRUSTEE SALE AND THAT’S IT IS. SO,
16 THE SUGGESTION THAT SOMEHOW UNDER MABRY THEY ARE
17 ENTITLED TO INJUNCTION IS FLAT WRONG. AND I WANT TO
18 MAKE THAT CLEAR FOR THE COURT SO THERE’S NO ROOM FOR
19 CONFUSION.
20 LET ME MAKE SURE I COVERED THE LEGAL
21 ISSUES. THEN I WANT TO TALK ABOUT PEACEMAKING.
22 THE COURT: ONLY IF YOU WISH TO.
23 MR. KLEIN: NO, I’D LIKE TO ADDRESS IT BRIEFLY.
24 THE COURT: THE POINT BEING, I’M CURIOUS WHETHER
25 THERE IS AN INTEREST IN PEACEMAKING.
26 MR. KLEIN: WELL, YOUR HONOR, LET ME ADDRESS
27 PEACEMAKING FOR A MOMENT. AND I’LL LET MR. CEKIRGE
28 DOUBLE CHECK WHETHER I MISSED A LEGAL ISSUE.
87
1 MR. STEIN COMES HERE TODAY, EXPRESSING AN
2 INTEREST IN EXPLORING RESOLUTION. IT SOUNDS LIKE IT’S
3 LOAN MODIFICATION.
4 THE COURT: CORRECT. THAT’S TRUE.
5 MR. KLEIN: WE HAD OUR ARMS OPEN TO THAT FROM DAY
6 ONE. AND THAT ARM’S STILL REMAIN OPEN. THERE’S A LOAN
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7 MODIFICATION PROCESS THAT TAKES PLACE. YOU HAVE TO
8 QUALIFY AND DEMONSTRATE THAT YOU CAN PAY AND FUND YOUR
9 LOAN, OTHERWISE WE ARE GOING TO BE BACK IN CLAIMING
10 THERE ARE DUTIES TO FIGURE THAT OUT, TOO. SO THEY HAVE
11 GOT TO PARTICIPATE IN THE PROCESS.
12 THEY HAVE THE LOAN MODIFICATION
13 APPLICATIONS. WE HAVE PROVIDED THEM SEVERAL TIMES. WE
14 ONLY HAVE A CERTAIN NUMBER OF PEOPLE WHO HAVE COME
15 FORWARD. THERE ARE RECENTLY —
16 THE COURT: SOME HAVE COME FORWARD THOUGH.
17 MR. KLEIN: AND WE HAVE MODIFIED, IF I’M NOT
18 MISTAKEN IS IT 10, APPROXIMATELY 10 OF THE — ABOUT 34
19 BORROWERS WHO SUBMITTED LOAN MODIFICATION APPLICATIONS.
20 THE COURT: HAVE THEY AGREED TO DISMISS WITHOUT
21 PREJUDICE?
22 MR. KLEIN: WE HAVEN’T ASKED THEM TO, BUT THEY
23 HAVEN’T DONE SO. WE’VE JUST MODIFIED THE LOAN.
24 THE COURT: LET ME PAUSE.
25 MR. STEIN OR MISS JONES, IS IT TRUE THAT AT
26 LEAST 6 OR MORE OF THE PLAINTIFFS HAVE AT LEAST OBTAINED
27 A LOAN MODIFICATION SINCE THE FILING OF THE SUIT?
28 MR. STEIN: YOUR HONOR, THE COURT WOULD BE WELL
88
1 SERVED TO REVIEW THE LOAN MODIFICATION DOCUMENT. THESE
2 LOAN MODIFICATIONS IN THIS PROCESS, WHICH IS NOW BEING
3 INVESTIGATED BY 50 STATES ATTORNEY GENERAL, ARE TRIAL
4 MODIFICATIONS THAT ARE EITHER BINDING OR MOST OF THEM
5 ARE THEN, MONTHS LATER, THE RUG IS PULLED OUT FROM UNDER
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6 THE LOAN MODIFICATION.
7 WE’RE NOT INTERESTED IN LOAN MODIFICATIONS.
8 WE’RE — THESE CLIENTS ARE INTERESTED IN THE SETTLEMENT
9 AGREEMENT AND MUTUAL RELEASE, WHERE THEY WOULD NOT BE
10 ABLE TO COME BACK INTO COURT AND ALLEGE A DUTY, AS
11 MR. KLEIN SAID.
12 THEY ARE INTERESTED —
13 THE COURT: SO THEY WANT A LOAN MOD, PLUS MORE.
14 MR. STEIN: NO, THEY — NO, MR. KLEIN JUST
15 INDICATED THAT HE’S GIVEN A LOAN MODIFICATION, IF HE
16 SHOWED YOU THE CONTRACTS, THE COURT CAN READ THEM, AND
17 THOSE PEOPLE HAVEN’T DISMISSED THEIR LAWSUIT, BECAUSE
18 THEY HAVE A LAWSUITS FOR DAMAGES, ETCETERA.
19 I’M INDICATING THAT TO THE EXTENT THERE’S A
20 BINDING IRONCLAD CONTRACT OF SETTLEMENT, THAT IT IS A
21 LOAN MODIFICATION OR RESTRUCTURING OR SETTLEMENT
22 AGREEMENT, I DON’T KNOW HOW IT’S CHARACTERIZED, THESE
23 PEOPLE WOULD DISMISS THE COMPLAINT. SO THESE PEOPLE ARE
24 OFFERING MORE, BUT THE PROCESS THAT THE BANK HAS
25 INITIATED TO FOLLOW THAT PROCESS, WHEN SINCE — DURING
26 THIS CASE, DURING THIS COURT’S TENURE IN THE CASE, SINCE
27 OCTOBER 26TH, THERE’S BEEN 50 STATES ATTORNEY GENERAL
28 INVESTIGATING —
89
1 THE COURT: THAT’S A DIFFERENT ISSUE. YOU ARE
2 GOING ON AT GREATER LENGTH THAN I NEED. I DO WANT TO
3 HAVE A FEW MINUTES TO READ YOUR CASES.
4 BACK TO MR. KLEIN.
5 MR. KLEIN: THE ANSWER IS WE HAVE MODIFIED THEM.
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6 THERE IS NO TRIAL MODIFICATION. THE BORROWERS ARE
7 PERFORMING THERE’S BEEN NO DISMISSAL WITH RESPECT TO
8 THEM. IF THEY WANT TO DISMISS THE CASE, GREAT. IF THEY
9 WANT TO PURSUE THE CASE, GREAT. WE HAVE MODIFIED THE
10 LOAN WITHOUT CONDITION ON THAT ISSUE.
11 THE COURT: DO YOU HAVE THOUGHTS IN YOUR OWN MIND
12 YOU ARE PREPARED TO SHARE WITH THE COURT OF WHAT YOU SEE
13 HAPPENING NEXT, AS TO THOSE SPECIFIC PLAINTIFFS NOW
14 THAT THEY HAVE THE BENEFIT OF THE LOAN MOD?
15 DO YOU HOPE TO GO BACK AND SMOKE THE PEACE
16 PIPE WITH THEM LATER OR SEE IF FOR SOME MODEST AMOUNT OF
17 MONEY TO ESSENTIALLY OFFSET THE PRACTICAL EXPENSE OF
18 ATTORNEY’S FEES OR OTHERWISE THEY MIGHT THEN BE PREPARED
19 TO GO QUIETLY INTO THE NIGHT? OR YOU ANTICIPATE
20 SOMEBODY TO SET IT UP AS A KIND OF FACTUAL DEFENSE FOR A
21 CLAIM FOR DAMAGES AT A LATER TRIAL?
22 MR. KLEIN: YOUR HONOR, IF THESE PARTIES WANT TO
23 SIT DOWN AND TALK ABOUT — ANY OF THEM WANT TO SIT DOWN
24 TALK ABOUT SETTLEMENT, FOR A — WHAT YOU HAVE DESCRIBED
25 AS A MODEST AMOUNT, WHICH WE MAY HAVE OUR DIFFERENT
26 VERSIONS OF WHAT MODEST AMOUNTS MAY BE, BUT, I MEAN, SO
27 FAR, THE —
28 THE COURT: I THINK THEY BELIEVE THEY HAVE GOT A
90
1 TIGER BY THE TAIL. YOUR IDEA OF MODEST MAY NOT BE YOUR
2 IDEA OF MODEST.
3 MR. KLEIN: THERE’S A DISAGREEMENT. THEIR IDEA
4 OF MODEST MAY BE $150 MILLION 998 OFFER I GOT IN JUNE.
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5 THAT’S NOT MODEST BY ANY STRETCH, CERTAINLY — I MEAN,
6 ONE OF US COMMENTED UPON — I MAY BE CONFUSING, I THINK
7 IT WAS AT THE START, THAT’S WHAT JUDGE JONES INDICATED,
8 BUT THAT’S NOT AN AWARD WE’RE TALKING ABOUT. WE ARE NOT
9 EVEN IN THE — I CAN’T EVEN FIGURE OUT SOMETHING IN THE
10 UNIVERSE THAT WE’RE TALKING ABOUT HERE.
11 THE COURT: WHAT IS IT THAT MAKES YOUR LITIGATION
12 BUDGET TO JUSTIFY TO THE CLIENT?
13 MR. KLEIN: YOUR HONOR, THE BANK’S PRIORITY FROM
14 DAY ONE IN THIS CASE, HAS BEEN TO LOOK FOR WAYS TO KEEP
15 THESE BORROWERS IN THEIR HOMES, IF THERE’S AN
16 OPPORTUNITY. SO FAR 34 — THAT’S BARELY 10 PERCENT OF
17 THESE BORROWERS, HAVE SUBMITTED LOAN MODIFICATION
18 APPLICATIONS. SO IF THEY WANT TO SUBMIT LOAN
19 MODIFICATION APPLICATIONS LET’S TALK ABOUT IT. THAT’S
20 EASY. I HAVEN’T EVEN ASKED FOR A DISMISSAL ON THAT, I
21 WOULD THINK THERE WOULD BE INTEREST THERE.
22 THE COURT: YOU’VE ANSWERED MY QUESTION, SO UNLESS
23 THERE MR. CEKIRGE, AS YOUR AUXILIARY BRAIN OR HARD DRIVE
24 HAS SOMETHING TO ADD, I’D LIKE TO TAKE A MOMENT TO LOOK
25 AT THESE CASES.
26 MR. SPIVAK: YOUR HONOR —
27 THE COURT: NOT YET.
28 MR. KLEIN: I’M GETTING THE GREEN LIGHT FROM
91
1 MR. CEKIRGE, THAT I’VE DONE AN ADEQUATE JOB.
2 MR. CEKIRGE: THAT’S TRUE, YOUR HONOR.
3 THE COURT: MR. SPIVAK, I HEAR FROM YOU BRIEFLY.
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4 MR. SPIVAK: VERY BRIEFLY.
5 LI MANDRI SPECIFICALLY STATES THAT THE —
6 THIS LACK OF DUTY IS OTHER THAN IN CONNECTION WITH
7 ENTERING INTO A CONTRACT, UNDER 1572, WE’RE TALKING HERE
8 ABOUT THE EXCEPTION THAT MAKES ALL OF THEIR USE OF LI
9 MANDRI IRRELEVANT.
10 I’D ALSO LIKE TO COMMENT TO, YOUR HONOR, A
11 CASE THAT’S CITED BOTH IN SOME OF OUR BRIEFS AND IN
12 THEIR REPLY BRIEF, NYMARK V. HEART FEDERAL SAVINGS AND
13 LOAN ASSOCIATION 231 CAL.APP.3D 1089.
14 THEY CITE IT FOR THEIR PURPOSES, BUT REASON
15 I’M RAISING IT IS, IT MAKES CLEAR THAT THE BANK’S
16 IMMUNIZATION, IF ANY, IS LIMITED, IT USES THE RULE ABOUT
17 CONVENTIONAL RULE AS LENDER, AND LISTS ON PAGE 1098 A
18 FIVE POINT BALANCING TEST TO DETERMINE WHEN A BANK
19 SHOULD OR SHOULDN’T BE LIABLE TO A LENDER, SUGGESTING
20 THERE IS NOT SOME BLANKET IMMUNITY OR THERE WOULDN’T BE
21 A NEED FOR AFIVE POINT BALANCING TEST.
22 THE COURT: THANK YOU. COURT’S IN RECESS.
23 MR. SPIVAK: THANK YOU.
24
25 (THE FOLLOWING PROCEEDINGS RESUMED
26 IN OPEN COURT:)
27 THE COURT: BACK ON THE RECORD. AND HAVING
28 REVIEWED SOME OF THE CASES, HAVE DISCUSSED AT THE
92
1 ARGUMENT SUCH AS PRICE V. WELLS FARGO BANK, WHICH A
2 PETITIONERS APPEARS TO BE FAIRLY RUN-OF-THE-MILL CASE
3 DEALING WITH THE QUESTION OF WHETHER OR NOT THERE’S
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4 ESSENTIALLY LENDER LIABILITY FOR ENGAGING IN CREDITORS
5 RIGHTS, WITH A RESULTING ALLEGED DAMAGES TO THE
6 PLAINTIFF, WHICH IS NOT THE SAME FACT PATTERN AS ALLEGED
7 HERE. AND NYMARK, N-Y-M-A-R-K, V. HEART FEDERAL SAVINGS
8 AND LOAN, WHICH IS A MISAPPRAISAL CASE, BUT AGAIN
9 WITHOUT THE ALLEGATIONS THAT THE DEFENDANTS HAD TOTALLY
10 DISTORTED THE VALUATIONS AND REAL ESTATE MARKET THAT’S
11 DISTINGUISHABLE, ALTHOUGH CERTAINLY CITABLE BY THE
12 DEFENDANT, AND IF A WRIT IS SOUGHT AS RELEVANT AS PERLAS
13 IN RAISING THE MORE GENERAL QUESTION OF THE EXTENT TO
14 WHICH THE COMMON LAW DOES WISH TO VISIT THE RISK OF THIS
15 KIND OF LIABILITY ON SOMEBODY IN THE CIRCUMSTANCES OF
16 COUNTRYWIDE OR NOW ITS NEW OWNER BANK OF AMERICA.
17 AND, FINALLY, THE LI MANDRI V. JUDKINS
18 CASE, L-I, CAP, M-A-N-D-R-I, V. J-U-D-K-I-N-S, INVOLVING
19 RATHER DIFFERENT CIRCUMSTANCE WHERE THE DEFENDANT THERE
20 WAS ACTUALLY COUNSEL FOR THE CREDITOR. I DON’T FIND ANY
21 OF THEM SO CLEARLY ON POINT AS TO REFUTE THE GENERAL
22 APPLICATION OF THE COMMON LAW WHERE I THINK THE
23 PLAINTIFF’S ARGUMENT CONTINUES TO BE PLAUSIBLE AND
24 THEREFORE I DON’T CHANGE MY TENTATIVE, IN PARTICULAR, AS
25 TO THE FIRST CAUSE OF ACTION.
26 SO, TO RECAP, I’M ASKING DEFENDANT HOPING
27 THAT MR. CEKIRGE OR MR. SHAW WILL BE AN APPROPRIATE
28 SCRIVENER, WITH NO DISRESPECT MEANT TO PLAINTIFF’S
93
1 COUNSEL, BUT I’M GOING TO STILL HAVE DEFENDANT GIVE
2 NOTICE, ALTHOUGH THIS IS IN THE GRAND SCHEME OF THINGS A
3 RULING PROBABLY MORE FAVORABLE TO PLAINTIFFS.
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4 IF PLAINTIFFS WANT TO PREPARE ANY ORDERS
5 FOLLOWING HEREAFTER, I’LL ENTERTAIN THE REQUEST, BECAUSE
6 I THINK THERE OUGHT TO BE A WRITTEN ORDER AS TO THE
7 FIRST CAUSE OF ACTION, INCLUDING A LANGUAGE THEREIN
8 UNDER CCP 166.1, WHICH IS WHAT RINGS THE BELL FOR THE
9 COURT OF APPEALS THAT IT’S WORTH THEIR NEAR TERM
10 ATTENTION.
11 SO, DEMURRER OF BANK OF AMERICA, OVERRULED
12 AS TO FIRST CAUSE OF ACTION, THOUGH THE COURT
13 ANTICIPATES THAT PLAINTIFF’S COUNSEL WILL BE MINDFUL OF
14 THEIR ETHICAL OBLIGATIONS UNDER CCP 128.7 IN REGARDS AS
15 TO ANY BORROWERS WHO REALLY DON’T HAVE CONTACT WITH
16 COUNTRYWIDE OR ANYBODY BELIEVED TO BE A CO-CONSPIRATOR
17 WITH COUNTRYWIDE AT THE TIME THE LOAN WAS ORIGINATED.
18 AND I TRUST YOU’LL BE IN DUE COURSE
19 DISMISSING SUCH PARTIES WITHOUT PREJUDICE, MR. SPIVAK,
20 AND COMPANY. THIS ALL APPLIES, OF COURSE, TO ITEM
21 NUMBER 2-A ON THE DOCKET, THE JOINDER, WHICH I GUESS IS
22 THE ANSWER TO THE QUESTION.
23 I MISSED THE FACT IT WAS A JOINDER, BUT I
24 GUESS THAT’S HOW RECON AND C.T.C. DID COME BEFORE THE
25 COURT. SO MAYBE WE DON’T NEED A MOTION TO STRIKE THEIR
26 DECLARATION OF NON-MONETARY STATUS, BECAUSE THEY HAVE
27 BROUGHT FORWARD AN APPEARANCE MORE PLENARY IN NATURE.
28 SO YOU CAN DISREGARD MY EARLIER COMMENTS
94
1 FROM THIS MORNING ABOUT THE POSSIBLE NEED TO MOVE TO
2 STRIKE IT, BECAUSE ESSENTIALLY WHEN YOU GET A RESPONSIVE
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3 PLEADING FROM BANK OF AMERICA AND COUNTRYWIDE AND
4 COUNTRYWIDE HOME LOANS, THE SAME THING WILL APPLY WITH
5 EQUAL FORCE TO THE NEED TO GET A FURTHER RESPONSIVE
6 PLEADING FROM RECONTRUST N.A. FROM C.T.C. REAL ESTATE
7 SERVICES, ALTHOUGH WE HAVE AMENDMENT COMING FROM
8 PLAINTIFFS, AMENDING BY PLAINTIFFS IS GOING TO PRECEDE
9 THE RESPONDING BY THE DEFENDANTS.
10 SO, FIRST CAUSE OF ACTION OVERRULED.
11 SECOND CAUSE OF ACTION, THIRD CAUSE OF
12 ACTION SUSTAINED WITH LEAVE TO AMEND.
13 HOW MUCH TIME DO PLAINTIFFS WANT?
14 MR. SPIVAK: 60 DAYS, YOUR HONOR.
15 THE COURT: YOU HAVE A CHORE AHEAD OF YOU, I SEE
16 THE LOGIC OF THAT. NO QUARREL.
17 MR. SPIVAK: THANK YOU, YOUR HONOR.
18 THE COURT: 60 DAYS FROM TODAY’S CALENDAR DATE,
19 WHICH IS MARCH 11.
20 MR. SPIVAK: THANK YOU, YOUR HONOR.
21 THE COURT: FOURTH CAUSE OF ACTION, OVERRULED;
22 FIFTH CAUSE OF ACTION SUSTAINED WITHOUT LEAVE TO AMEND.
23 SIXTH CAUSE OF ACTION OVER PLAINTIFF’S
24 OBJECTION, SUSTAINED WITHOUT LEAVE TO AMEND, BUT WITHOUT
25 PREJUDICE TO A FUTURE CLAIM IF A NEW CAUSE OF ACTION
26 ACCRUES FOR PLAINTIFFS, PAUL RONALD; LISA RONALD;
27 PRICILLA BOWIN; TRACEY HAMPTON-STEIN AND RENE MINNAAR,
28 OTHERWISE OVERRULED.
95
1 FIFTH CAUSE OF ACTION I THINK — I ALREADY
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2 SAID, SUSTAINED WITHOUT LEAVE TO AMEND.
3 7TH AND 8TH CAUSE OF ACTION, OVERRULED.
4 MOTION TO STRIKE DENIED, ALL THIS IS
5 WITHOUT PREJUDICE TO RENEWING MANY OF THE ARGUMENTS MADE
6 AS TO THE DEMURRER AND MOTION TO STRIKE IN THE CONTEXT
7 OF FUTURE CHALLENGES TO THE MERITS OF THE CLAIM, SUCH AS
8 A MOTION FOR SUMMARY ADJUDICATION OR SUCHLIKE.
9 I WOULD — DO PLAINTIFFS WANT TO PREPARE
10 THE ORDER AS TO THE FIRST CAUSE OF ACTION OR DEFER TO
11 YOUR ADVERSARIES TO START, FROM WHICH THEY WISH TO TAKE
12 THE WRIT?
13 MR. SPIVAK: WELL, PREPARE THE ORDER, YOUR HONOR.
14 THE COURT: OKAY. BUT THEN YOU ARE DIRECTED TO
15 MEET AND CONFER WITH THE DEFENDANTS TO PREPARE AN
16 APPROPRIATE ORDER SPECIFIC TO THE FIRST CAUSE OF ACTION,
17 REFLECTING THE FACT THAT THE COURT HAS OVERRULED THE
18 DEMURRER, BUT CERTIFIED THE QUESTION FOR THE COURT OF
19 APPEALS, BECAUSE I THINK BASED ON AUTHORITIES SUCH AS
20 PERLAS AND NYMARK, THAT REASONABLE MINDS CAN DIFFER AS
21 TO WHETHER OR NOT THE DUTY DOES EXIST, EVEN BASED ON
22 PLEADINGS OF THE PLAINTIFF AND THE ATTEMPT TO TETHER IT
23 TO NORMAL COMMON LAW PRINCIPLES.
24 THERE ARE SOCIOECONOMIC AND JURISPRUDENTIAL
25 REASONS WHY ONE MAY NOT WANT TO SADDLE A BANK FOR THIS
26 DUTY. AND I THINK IT’S A FAIR QUESTION FOR OUR COURT OF
27 APPEALS TO ADDRESS SOONER, RATHER THAN LATER SO I
28 BELIEVE REASONABLE MINDS CAN DIFFER AND IT’S HUGELY
96
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1 IMPORTANT TO THE OUTCOME OF THE CASE.
2 MR. KLEIN: QUICKLY, YOUR HONOR, I THINK THAT
3 FROM MY UNDERSTANDING FROM THE COURT WAS ALSO CERTIFYING
4 WITH RESPECT TO CAUSATION IN THE CLAIM AND CAUSATION ON
5 THE U.C.L. CLAIM.
6 THE COURT: I’M ONLY INTERESTED IN THE CONCEALMENT
7 CLAIM, AND AS TO THAT I’M HAPPY TO HAVE YOU ARGUE ANY
8 REASON WHY YOU SHOULD HAVE HAD YOUR DEMURRER SUSTAINED
9 WITHOUT LEAVE TO AMEND.
10 AND IF YOU THINK CAUSATION IS A PERSUASIVE
11 ARGUMENT, FINE. I’M NOT AT THIS MOMENT CERTIFYING AS TO
12 THE U.C.L. CLAIM. I’M ONLY CERTIFYING AS TO THE FIRST
13 CAUSE OF ACTION.
14 MR. KLEIN: UNDERSTOOD.
15 THE COURT: THE U.C.L. CLAIM IS A TOTAL QUAGMIRE
16 LIKE A LAND WAR IN ASIA. AND IT IS NOT SUITABLE FOR
17 QUICK ATTENTION BY THE COURT OF APPEALS. BETTER IF YOU
18 HOPE TO GET THEM TO EVEN FOCUS ON THIS, TO GIVE THEM A
19 CLEAN PROJECT AND NOT SADDLE THEM WITH THAT.
20 IT IS LIKE A — THIS WHOLE CASE IS LIKE A
21 LAND WAR IN ASIA, AT LEAST FROM MY POINT OF VIEW.
22 SO, DEFENDANT’S GOING TO GIVE NOTICE OF
23 RULING; THE PLAINTIFF, HOWEVER, IS TO PREPARE THE ORDER
24 AS TO THE FIRST CAUSE OF ACTION AND THE CERTIFICATION.
25 IF YOU CAN’T REACH YOUR ADVERSARIES’ CONSENT AS TO THE
26 FORM OF THE ORDER, LODGE YOUR PROPOSED ORDER WITH PROOF
27 OF SERVICE BY NEXT TUESDAY, JANUARY 18. AND IF THERE’S
28 OBJECTION, PLAINTIFF CAN COME FORWARD WITH ITS OBJECTION
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97
1 AND ITS ALTERNATIVE PROPOSED ORDER.
2 I’M FRANKLY NOT PROPOSING THAT IT BE A
3 LONG, EXTENDED, WINDY OPINION ABOUT THE MERITS AS MUCH
4 AS THE STATEMENT THAT “THIS IS THE RULING AND DESERVES
5 ATTENTION INGS BY THE COURT OF APPEAL.”
6 BUT IF PLAINTIFFS WANT TO GET MORE
7 CREATIVE, THE MORE CREATIVE YOU GET THE MORE OBJECTING
8 YOU ARE GOING TO GET.
9 MR. KLEIN: YOUR HONOR, WE WILL PAY FOR EXPEDITED
10 TRANSCRIPT AND PROVIDE IT TO COUNSEL FOR THE PLAINTIFFS.
11 IF WE CAN DO THAT WITHIN 48 HOURS IT WOULD HELP PARTIES.
12 THE COURT: I’M NOT GOING TO ORDER MISS LARA AS TO
13 WHEN IT’S READY, BUT I’M SURE SHE’LL BE HAPPY TO
14 COOPERATE WITH YOU TO THE EXTENT POSSIBLE.
15 MR. KLEIN: SHE ALWAYS DOES.
16 THE COURT: ANY PRIOR STAYS ON DISCOVERY ARE
17 LIFTED, OBVIOUSLY, THE DEFENDANT’S TIME TO RESPOND,
18 INCLUDING RECONTRUST AND C.T.C. IS GOING TO BE THE DAY
19 AFTER THE AMENDED PLEADING COMES FORWARD AND FOR THE
20 VERY REASON THAT THIS IS AN THORNY PLEADING, I WILL GIVE
21 THE APPEARING DEFENDANTS UNTIL — IT’S GOING TO BE SIX
22 WEEKS, APRIL 22, IN WHICH TO ANSWER OR OTHERWISE RESPOND
23 TO THE NEW PLEADING.
24 I DON’T THINK THIS CASE IS GOING TO GO
25 EASILY. I WISH OTHERWISE, AND I HOPE I WILL SEE AT
26 LEAST PROFESSIONALISM AND COOPERATION AMONGST COUNSEL,
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27 RECOGNIZING THAT YOU DON’T GAIN EITHER SIDE ANYTHING BY
28 JUST BEING CANTANKEROUS FOR THE SAKE OF SHOWING YOU’VE
98
1 GOT MUSCLE.
2 BUT I DO THINK I WILL PROBABLY NEED TO GIVE
3 YOU MORE, RATHER THAN LESS ATTENTION. SO, CAN IT WAIT
4 UNTIL LIKE THE LAST WEEK OF JANUARY FOR THE NEXT TIME WE
5 CHECK IN WITH EACH OTHER? AND I’M HAPPY TO HAVE PHONE
6 APPEARANCES SO THOSE OF YOU WHO COME FROM THE DISTANCE
7 DON’T FEEL A NEED TO TRAVEL. OR DO I NEED TO SEE YOU
8 EVEN SOONER?
9 MR. KLEIN: I THINK, PROBABLY, YOUR HONOR, IF I
10 DID MY MATH CORRECTLY, HIGHLY UNLIKELY THAT I HAVE, BUT
11 IF THE 11TH, THE 18TH, THE COURT WERE TO ENTER AN ORDER
12 BY THE 20TH OR 21ST, I CERTAINLY DON’T WANT TO PUT UNDUE
13 BURDEN ON THE COURT. IT LOOKS LIKE IT’S THE END OF
14 JANUARY OR THE END OF THE FIRST WEEK OF FEBRUARY, MAY BE
15 THE BEST TIME FOR THAT, AFTER WE HAVE GOT THE ORDER
16 ENTERED.
17 THE COURT: WHEN YOU SAY YOU HAVE THE ORDER, YOU
18 ARE THEN TO TAKE A WRIT. I UNDERSTAND YOU WANT THE
19 ORDER FIRST AND THAT’S WHEN HOPEFULLY YOU’LL HAVE THE
20 DRAFT AND CAN MOVE AHEAD, BUT UNTIL YOU HAVE AN ORDER
21 FROM WHICH TO TAKE A WRIT, IT’S UNREASONABLE TO EXPECT
22 YOU TO PUT SOMETHING IN THE COURT OF APPEALS INBOX.
23 MR. KLEIN: WHICH IS EXACTLY THE TIME —
24 THE COURT: THEY ARE AMENABLE BY THE WAY OF
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25 PUTTING ON THE FIRST PAGE OF THE RED CAPTION PAGE THE
26 FACT THAT THE COURT HAS CERTIFIED IT, TO TRY CAPTURE
27 THEIR ATTENTION. AND I SAY THAT TO BOTH SIDES, ANY TIME
28 YOU WANT TO TAKE A WRIT, IF YOU HAVE IT CERTIFIED YOU
99
1 MIGHT AS WELL MAKE IT AS PLAIN AS THE NOSE ON YOUR FACE,
2 HOPING THAT SOME WRIT ATTORNEY WILL GO PAY A LITTLE MORE
3 ATTENTION TO YOUR PAPERWORK, RATHER THAN HAVING IT
4 BURIED. WE HAVEN’T HAD AS MUCH SUCCESS IN GETTING THEM
5 TO PAY ATTENTION TO CERTIFIED WRITS AS WE’D LIKE,
6 FRANKLY.
7 HOW ABOUT A FURTHER STATUS CONFERENCE ON
8 THURSDAY, FEBRUARY 3 AT 1:30 P.M.?
9 MR. SPIVAK: FINE, YOUR HONOR.
10 MR. KLEIN: LET ME TURN ON MY PHONE, I THINK IT
11 SHOULD BE FINE. LOOKS GREAT TO ME, YOUR HONOR.
12 THE COURT: OKAY. AND I’D LIKE EACH SIDE TO GIVE
13 ME FURTHER STATUS REPORT OF WHAT YOU THINK I NEED TO
14 KNOW. DON’T FEEL YOU’VE GOT TO RECAP ALL OF THE MERITS
15 OF THE CLAIMS, JUST TELL ME WHAT’S NEW AND DIFFERENT
16 THAT I WOULDN’T HAVE KNOWN BY MONDAY, JANUARY 31.
17 MR. KLEIN: YOUR HONOR, ONE POINT, I THINK
18 FEBRUARY 4TH IS THE DATE THAT THE PLAINTIFFS WOULD BE
19 FILING THEIR MOTION FOR PRELIMINARY INJUNCTION.
20 THE COURT: COULD BE. I FORGET.
21 MR. KLEIN: MY ONLY POINT RAISING THAT IS IT MAY
22 BE BENEFICIAL IN THE INTEREST OF DISCLOSURE IF THEY HAVE
23 AN OPPORTUNITY TO TELL US WHICH PLAINTIFFS ARE MOVING
24 BEFORE THE PRELIMINARY INJUNCTION, AT THIS TIME, SO WE
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25 CAN GATHER THOSE DOCUMENTS AND GET THEM TO THEM SOONER.
26 SINCE WE ARE GATHERING DOCUMENTS AND PRODUCING THEM, IF
27 THEY ARE ABLE TO IDENTIFY THOSE BORROWERS, IT WOULD HELP
28 US GATHER OUR DOCUMENTS AND NOT COME INTO COURT TO
100
1 COMPLAIN THAT WE DIDN’T HAVE ENOUGH TIME.
2 THE COURT: THAT’S A DIFFERENT QUESTION THAN
3 WHETHER OR NOT WE OUGHT TO HAVE A STATUS CONFERENCE
4 FEBRUARY 3. ARE YOU QUARRELING WITH THAT OR MAKING A
5 NEW REQUEST?
6 MR. KLEIN: I APOLOGIZE, YOUR HONOR. IT IS A
7 DIFFERENT ISSUE. YOU ARE CORRECT.
8 THE COURT: SO WE’LL STAY WITH FEBRUARY 3. I’D
9 LIKE A REPORT BY JANUARY 31.
10 IS IT FINE IF THE REPORT ON JANUARY 31
11 TELLS US WHO THEY EXPECT TO FILE FOR FOUR COURT DAYS
12 LATER?
13 MR. KLEIN: THE SOONER THE BETTER, BUT OBVIOUSLY
14 IF I CAN GET DOCUMENTS TO THEM PRIORITIZE DOCUMENTS
15 PRODUCTION SOONER, THAT WOULD BE BETTER, OTHERWISE, YOU
16 KNOW, THE MORE TIME I HAVE — I’M GATHERING UMPTEEN —
17 OVER 140,000 PAGES I’M LOOKING AT RIGHT NOW.
18 MR. STEIN: I THINK IT’S MORE THAN THAT.
19 THE COURT: I FORGET WHAT THE SOVIETS CALLED IT,
20 BUT YOU OBVIOUSLY WILL BE THE HERO WORKER FOR BRYAN CAVE
21 THIS YEAR.
22 MR. KLEIN: AGAIN, YOUR HONOR, THAT’S NOT
23 SOMETHING I ASPIRE FOR. PERHAPS THE OPPOSITE.
24 THE COURT: COMES WITH THE TERRITORY.
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25 IT SHOULD BE OBVIOUS THAT IT BEHOOVES
26 PLAINTIFFS TO SHARE THIS INFORMATION WHEN THEY CAN. I’M
27 NOT MAKING AN ORDER SPECIFIC TO IT.
28 IF YOU ARE GOING TO MOVE ON FEBRUARY 4TH
101
1 IT’S GOING TO BE OBVIOUS ENOUGH THEN WHO SEEKS A RELIEF.
2 BUT IF YOU’LL MAKE THE DISCLOSURES IN
3 ADVANCE, THEN DISCOVERY SHOULD GO MORE SMOOTHLY.
4 MR. STEIN: YOUR HONOR, EXTREMELY BRIEFLY. IN
5 VIEW OF THE CASE THAT WAS ISSUED TODAY, ALBEIT IN A
6 DISTANT STATE, PLAINTIFFS WILL HAVE TO EXAMINE THAT CASE
7 AND REEXAMINE IT, BECAUSE THAT CASE CRIES OUT FOR AND
8 OTHER CASES, SIMILAR CRIES OUT FOR INJUNCTIVE RELIEF
9 BECAUSE THE BANK MAY NOT HAVE STANDING TO FORECLOSE AS
10 THEY ARE — AS THEY HAVE SAID IN THEIR REPLY BRIEF THEY
11 ARE GOING TO DO SO —
12 THE COURT: THAT’S A POLITE WAY OF SAYING YOU MAY
13 MOVE AS TO ALL PLAINTIFFS.
14 MR. STEIN: OR WE MAY MOVE AS TO NONE OF THEM.
15 WE MAY PUSH BACK THE PRELIMINARY — WE HAVE TO EXAMINE
16 THE OPINION, THE OPINION WAS JUST ISSUED TODAY,
17 LITERALLY, LITERALLY, TODAY. I HAVEN’T READ IT.
18 THE COURT: DOES EITHER SIDE SUGGEST MY STATUS
19 CONFERENCE SHOULD BE SOONER THAN FEBRUARY 3, IN VIEW OF
20 ALL THIS? I WILL SEE YOU SOONER IF YOU THINK IT HELPS OR
21 ACTUALLY THAT MIGHT BE SOON ENOUGH.
22 MR. KLEIN: YOUR HONOR, I THINK MR. STEIN
23 ACTUALLY HAS A VERY BUSY CALENDAR, SO THERE’S NO
24 REASON — PARDON THE WORD “DRAG”, THERE’S NO REASON TO
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25 HAVE US ALL COME DOWN HERE DURING A HEAVY SCHEDULE.
26 THE COURT: IF ON FEBRUARY 3 YOU TELL ME
27 PLAINTIFFS DON’T INTEND TO FILE THE NEXT DAY, THEY ARE
28 NOT GOING TO BE IN CONTEMPT OF COURT. THEY ARE
102
1 PROTAGONISTS. IF THEY TELL ME THEY NEED MORE TIME, I
2 DON’T KNOW WHY I’D CHASTISE THEM FOR TAKING MORE TIME.
3 BUT I WOULD APPRECIATE KNOWING ON FEBRUARY 3 THAT
4 CALENDERING EVENTS HAVE CHANGED AND WE’LL TRY TO WORK
5 COOPERATIVELY.
6 MR. KLEIN: I DON’T THINK YOU’D HEAR COMPLAINT
7 FROM ME EITHER, YOUR HONOR.
8 THE COURT: MY PURPOSE ISN’T TO RULE FOR ONE SIDE
9 OR ANOTHER. I’M JUST HERE AS NEUTRAL TRYING TO BRING
10 FORWARD THE PEOPLE’S BUSINESS. I DO RECOGNIZE,
11 NOTWITHSTANDING SOME THE GENERAL COMMENTS I’VE MADE
12 ABOUT THE LARGER SOCIOECONOMIC IMPACTS OF SOME OF THESE
13 ISSUES THAT UNLESS AND UNTIL THE PARTIES ARE GIVEN AN
14 ALTERNATIVE MODE OF RESOLVING THEIR DISPUTES THAT THEY
15 FIND SATISFACTORY, WHICH FOR WHATEVER REASON LEGISLATIVE
16 BODY ATTEMPTS TO CRAM DOWN IF THEY THINK THEY CAN
17 CONSTITUTIONALLY DO SO, THAT MY PAID JOB IS TO PROVIDE
18 TRADITIONAL ADJUDICATIVE JUSTICE ON THE MERITS.
19 AND WHILE I EXPLORE AS CIVIL JUDGES ALWAYS
20 DO WHAT THE SETTLEMENT ALTERNATIVES ARE, INCLUDING IN
21 THE TRADITIONAL MODES WE USE HERE OR ALTERNATIVE
22 PROCESSES THAT MAY BE NASCENT, I EXPECT TO GIVE YOU
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23 TRADITIONAL COMMON LAW AND STATUTORY AN ADJUDICATIVE
24 PROCESSES TO CONSISTENT WITH THE CODE OF CIVIL PROCEDURE
25 AND OTHERWISE GET THE CASE RESOLVED IF THERE’S NO
26 COMPROMISE.
27 SO IT MAY BE A CHORE, BUT IF IT LOOKS LIKE
28 IT WILL BE AN INTERESTING CHORE FROM A NEUTRAL’S POINT
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1 OF VIEW.
2 ALL COUNSEL: THANK YOU, YOUR HONOR.
3
4
5 (PROCEEDINGS CONCLUDED.)
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There seems to be a bit of confusion as to exactly what a Mass Joinder lawsuit is. To that end I will provide you standard definition as well as a laymen’s interpretation.
According to Wikipedia:
Joinder in criminal law is a legal term which refers to the inclusion of additional counts or additional defendants on an indictment. In English law, charges for any offence may be joined in the same indictment if those charges are founded on the same facts, or form or are a part of a series of offences of the same or a similar nature. A number of defendants may be joined in the same indictment even if no single count applies to all of them, provided that the counts are sufficiently linked. The judge retains the option to order separate trials.
Joinder in civil law falls under two categories: joinder of claims, and joinder of parties. Joinder of claims is addressed in U.S. law by the Federal Rules of Civil Procedure No. 18(a). That Rule allows claimants to consolidate all claims that they have against an individual who is already a party to the case. Claimants may bring new claims even if these new claims are not related to the claims already stated. Note that joinder of claims is never compulsory (i.e., joinder is always permissive), and that joinder of claims requires that the court’s subject matter jurisdiction requirements regarding the new claims be met for each new claim.
So what does this all mean to you and me? Simply put there are two key tenets to a Mass Joinder Lawsuit.
1. Shared Costs. Since the plaintiff are suing the same entity (the banks) for the same violations of law; Proof of Note, Proof of Security, and MERS as an invalid nominee, the plaintiffs are able to share in the legal fees. If an individual wants to hire a law firm to take on one of the largest financial institutions in the world, the legal fees would start at about $50,000 and increase quickly as the process evolved. By participating in the Mass Joinder, the plaintiffs are able to retain the law firm as very small fraction of the cost. Currently there are over 1200 plaintiffs involved in this case.
2. Individual settlements. Unlike a Class Action suit where the plaintiffs all share one judgment after the attorneys take their fee. In a Mass Joinder each since each plaintiffs’ individual loan is unique, and therefore the bank may have violated different laws during it’s handling of said loans, each home owner may have unique demands and gain the benefit of having everone’s complaints being added as weight to their individual case. Examples of those demands are: (Principle Reduction, Full Lien Strip, and Monetary Compensation)
3. From the standpoint of protecting yourself from foreclosure, this action can assist in preventing a foreclosure from going into a sale of the property. The legal term is know as a “compulsory counterclaim” which simply means that if one party sues another (i.e a bank sue a borrower to recover the property in the mortgage, and then the borrower sue the bank, i.e Mass Joinder Lawsuit neither party can execute a legal action against the other until the case is either settle or won by either party.
For a better understanding of the legal rational and strategy and how it may apply to your specific loan, call or email me to discuss. by email at Mccandlesslaw@gmail.com by phone 909-890-9192 begin_of_the_skype_highlighting 909-890-9192 end_of_the_skype_highlighting begin_of_the_skype_highlighting 909-890-9192 end_of_the_skype_highlighting in Southern California and 925-957-9797 The documents that should be located and emailed are as follows:
Client & Property Worksheet
1. Copy of Trust Deed
2. Copy of Mortgage Note
3. Notice of Default if it exists
4. Notice of Trustee Sale if it exists
email to Mccandlesslaw@gmail.com
And the first “meaty” part of the complaint….
5. The fraud perpetrated by the Countrywide Defendants from 2003 through 2007, including by BofA starting no later than 2007, was willful and pervasive. It begin with simple greed and then accelerated when Countrywide founder and CEO Angelo Mozilo (“Mozilo”) discovered that Countrywide could not sustain its business, unless it used its size and large market share in California to systematically create false and inflated property appraisals throughout California. Countrywide then used these false property valuations to induce Plaintiffs and other borrowers into ever-larger loans on increasingly risky terms. As Mozilo knew from no later than 2004, these loans were unsustainable for Countrywide and the borrowers and to a certainty would result in a crash that would destroy the equity invested by Plaintiffs and other Countrywide borrowers.
In other words, Countrywide is alleged to not only have made bad loans, but also to have intentionally inflated appraisals.
6. Hand-in-hand with its fraudulently-obtained mortgages, Mozilo and others at Countrywide hatched a plan to “pool” the foregoing mortgages and sell the pools for inflated value. Rapidly, these two intertwined schemes grew into a brazen plan to disregard underwriting standards and fraudulently inflate property values – county-by-county, city-by-city, person-by-person – in order to take business from legitimate mortgage-providers, and moved on to massive securities fraud hand-in-hand with concealment from, and deception of, Plaintiffs and other mortgagees on an unprecedented scale.
Oh, that’s rich. So not only (it is alleged) did Countrywide bamboozle borrowers, they also bamboozled investors.
9. It is now all too clear that this was the ultimate high-stakes fraudulent investment scheme of the last decade. Couched in banking and securities jargon, the deceptive gamble with consumers’ primary assets – their homes – was nothing more than a financial fraud perpetrated by Defendants and others on a scale never before seen. This scheme led directly to a mortgage meltdown in California that was substantially worse than any economic problems facing the rest of the United States. From 2008 to the present, Californians’ home values decreased by considerably more than most other areas in the United States as a direct and proximate result of the Defendants’ scheme set forth herein. The Countrywide Defendants’ business premise was to leave the borrowers, including Plaintiffs, holding the bag once Countrywide and its executives had cashed in reaping huge salaries and bonuses and selling Countrywide’s shares based on their inside information, while investors were still buying the increasingly overpriced mortgage pools and before the inevitable dénouement. This massive fraudulent scheme was a disaster both foreseen by Countrywide and waiting to happen. Defendants knew it, and yet Defendants still induced the Plaintiffs into their scheme without telling them.
There’s the base of it all….
24. Defendants have gone to great lengths to avoid producing documents in this litigation because they know that such documents will establish all details of the massive fraud they perpetrated on Plaintiffs and other Californians. PennyMac, the Granada Network and Defendants’ overseas operations are used by Defendants to systematically hide documents. By delaying production of documents, the Defendants are buying time as they (a) accept the benefits of the scheme described herein, (b) cover up their fraud, and (c) make it materially more expensive and difficult for Plaintiffs and their counsel to obtain a just result.
Of course there’s the famous “let’s hide Waldo” game once the gig is pretty much up. After all, if we have to produce the documents, well, our goose might be cooked – and that would be bad.
So what else is presented in here? Oh, all sorts of good stuff. Here’s a sampling:
275. Defendant CT REAL ESTATE SERVICES, INC. is a California corporation – corporation number C0570795 – and is a resident of Ventura County, California. Defendant CT REAL ESTATE SERVICES has acted alongside and in concertwith BofA in carrying out the concealment described herein and in continuing to conceal from Plaintiffs, from the California general public, and from regulators the details of the securitization and sale of deeds of trust and mortgages (including those of Plaintiffs herein) that would expose all Defendants herein to liability for sale of mortgages of California citizens – including all Plaintiffs herein – for more than the actual value of the mortgage loans. The sale and particularly the undisclosed sale of mortgage loans in excess of actual value violates California Civil Code, §§ 1709 and 1710, and California Business and Professions Code § 17200 et seq., 15 U.S.C. §§ 1641 et seq. and other applicable laws.
That sounds like a problem to me……
290. At the time of entering into the notes and deeds of trust referenced herein with respect to each Plaintiff, the Countrywide Defendants were bound and obligated to fully and accurately disclose:
a. Who the true lender and mortgagee were.
b. That to induce a Plaintiff to enter into the mortgage, the Countrywide Defendants caused the appraised value of Plaintiff’s home to be overstated.
c. That to disguise the inflated value of Plaintiff’s home, Countrywide was orchestrating the over-valuation of homes throughout Plaintiff’s community.
d. That to induce a Plaintiff to enter into a mortgage, the Countrywide Defendants disregarded their underwriting requirements, thereby causing Plaintiff to falsely believe that Plaintiff was financially capable of performing Plaintiff’s obligations under the mortgage, when the Countrywide Defendants knew that was untrue. One way they systematically disregarded the underwriting requirements was through the use of the Granada Network, another fact which Defendants systematically failed to disclose to any California borrower.
Ding ding ding ding ding ding!
One of the keys to this mess is that the lenders knew full well that the borrowers could not pay “as agreed”, yet made the loans anyway.
i. The sales would include sales to nominees who were not authorized under law at the time to own a mortgage, including, among others, Mortgage Electronic Registration Systems Inc., a/k/a MERSCORP, Inc. (“MERS”), which according to its website was created by mortgage banking industry participants to be only a front or nominee to “streamline” the mortgage re-sale and securitization process;
ii. Plaintiff’s true financial condition and the true value of Plaintiff’s home and mortgage would not be disclosed to investors to whom the mortgage would be sold;
iii. Countrywide intended to sell the mortgage together with other mortgages as to which it also intended not to disclose the true financial condition of the borrowers or the true value of their homes or mortgages;
iv. The consideration to be sought from investors would be greater than the actual value of the said notes and deeds of trust;
and
v.The consideration to be sought from investors would be greater than the income stream that could be generated from the instruments even assuming a 0% default rate thereon;
You mean basically everything important about the loans, their quality, who they were going to be sold to, why and how was all bogus? And in addition, the price to be sought from investors exceeded the income stream that could be achieved even if nobody defaulted at all?
Heh, that’s a good gig if you can get it – and if you can find a way to do it legally.
Are there some facts behind this? Oh it appears there are…
The credit losses experienced by Countrywide in 2007 not only were foreseeable by the proposed defendants, they were in fact foreseen at least as early as September 2004. [¶ 33 (Emphasis in original)]
. . .
The credit risk described in the September 2004 warning worsened from September 2004 to August 2007. [¶ 35 (Emphasis in original)]
. . .
By no later than 2006, Mozilo and Sambol were on notice that Countrywide’s exotic loan products might not continue to be saleable into the secondary market, yet this material risk was not disclosed in Countrywide’s periodic filings. [¶ 45]
. . .
Mozilo and Sambol made affirmative misleading public statements in addition to those in the periodic filings that were designed to falsely reassure investors about the nature and quality of Countrywide’s underwriting. [¶ 91]
Oh my. 2004 eh? I seem to remember tAngelo on CNBS making multiple appearances talking about how his company was going to take market share from all these subprime lenders that collapsed, and this was going to be great for his company. Indeed, I remember chortling at the time that I believed he was a lying SOB, and of course the so-called “Fantastic Mainstream Media” lapped it up – and helped support his stock price.
It appears that the intrepid attorneys who filed this action remember that too…. and the pages surrounding 100 in the complaint document a whole bunch of them, including statements in 10Ks and 10Qs that, it is alleged, were flatly false.
And, of course, there’s this one, which I have referred to many times over the last three and a half years:
363. In the January 30, 2007 earnings conference call, Mozilo attempted to distinguish Countrywide from other lenders by stating “we backed away from the subprime area because of our concern over credit quality.” On March 13, 2007, in an interview with Maria Bartiromo on CNBC, Mozilo said that it would be a “mistake” to compare monoline subprime lenders to Countrywide. He then went on to state that the subprime market disruption in the first quarter of 2007 would “be great for Countrywide at the end of the day because all of the irrational competitors will be gone.”
I distinctly remember the cheesy suits and ties, not to mention the sprayed-on-looking tan.
370. In fact, the appraisals were inflated. Countrywide did not utilize quality underwriting processes. Countrywide’s financial condition was not sound, but was a house of cards ready to collapse, as Countrywide well knew, but Plaintiffs did not. Further, Plaintiffs’ mortgages were not refinanced with fixed rate mortgages and neither Agate nor Countrywide ever intended that they would be.
As I have repeatedly pointed out, the entire intent of these loans was not to be a mortgage at all. It was, I allege, more akin to an asset-stripping scheme where the borrower would be effectively forced to come back to the lender after a couple of years when the teaser expired or the inevitable reset or recast occurred and effectively hand over his accumulated “appreciation” in price through yet more fees to be paid to the “lender.”
I believe that for all intents and purposes, from the lender’s point of view, this was nothing more than renting the house, as passing of a clear title to the buyer was never part of what was contemplated by the lender – but of course the borrower wasn’t told this in advance – or at all.
There’s much more in the complaint, but this will do for a start.
Incidentally, the banks tried to get this removed to Federal Court and kill it, and were rebuffed, so it appears that it’s headed to trial. Plaintiff’s Bar 1, Banksters 0 thus far – I will be providing updates on this case as I become aware of them. Southern California (909)890-9192 begin_of_the_skype_highlighting (909)890-9192 end_of_the_skype_highlighting in Northern California(925)957-9797
Group Seeking Plaintiffs In Massive Lawsuit Against Bank of America (Countrywide) / Chase / Wells Fargo / Citi / Onewest / GMAC
We are currently seeking homeowners in the State of California, to join our legal action against PREDATOR BANKS, for their complicity in the massive mortgage fraud schemes, known as ‘Mortgage Gate’:
The time has finally come! Law suits are exploding all over the country, because … We The People … are now going to fight back. We are going after the following banks:
Bank of America (Countrywide) / Chase / Wells Fargo / Citi / Onewest / GMAC.
Below is the link to the case Stien firm filed last summer. It’s the 117 page Complaint against Bank of America: Ronald, et al vs. Bank of America (Countrywide), Case No. BC409444.
Click to access Complaint_Ronald_TAC_7-7-10_Conformed.pdf
This case is a ‘joinder’ with currently 1,100 homeowners already onboard. Joinders are different than class actions in that, clients receive only a small share of the winnings in a class action. Eg: $100 out of a $5 Million settlement. In a joinder, however, each Complaint is settled SEPARATELY, according to the damages they directly sustained. And yet, the entire group is represented under one Complaint.
Recently our clients racked up some really great, CONSECUTIVE WINS against B of A. Take a look:
1. Five injunctions.
2. The order of Judge Chaney RESCINDING 9 notices of default (never before done in California legal history).
3. An order “Ordering Bank of America” to submit to discovery. (Heretofore, they had the audacity to refuse furnishing proof that they actually “owned” the property they stole from homeowners.)
4. An order throwing Bank of America’s motion out of Federal Court, because Ronald et al v. Bank of America is not “Preempted by Federal Law.”
5. And COUNTLESS additional orders to stop homes from being sold.
In addition, our attorneys are demanding various damages, deepening upon each unique situation of the homeowner. Those being:
1. Monetary compensation for those already foreclosed upon.
2. Principle reduction to 80% or less than current market value
3. FULL Lien striping
Folks, I’m a legal assistant and former loan modification processor. Like you, I’ve seen it all.
Let me tell you what happened to one of my clients, Mr. Flores, of Orange County, CA. Mr. Flores is a small business owner (“Beach Transmission” … cross street Lampson). He owns a little transmission shop on Beach Boulevard. He has been renting out two units at his shop for well over ten years. Mr. Flores collects $3,600 in rent each month from his two shop tenants. During the entire ten years, the IRS recognized this as certifiable INCOME on his tax returns.
But when Mr. Flores applied for a home-loan modification with Bank of America, they refused to recognize his shop rentals as income (even though the IRS has for years!). As a result, B of A tabulated his income as NEGATIVE $1,500 because they refused to factor in his $3,600 of rental income. Mr. Flores didn’t qualify for the modification, couldn’t keep up the payments, and they sold his house.
To add insult to injury, the B of A rep told me, bold-faced, over the phone that …”Mr. Flores is a high risk mortgagor according to our charts.”
I asked the rep what he meant by ‘charts’ and he said…”Well, we check the SPENDING HABITS of each borrower by age, marital status, number of children, line of work, and income, in that particular neighborhood to see who is most likely to default on a loan, or not.”
We had this person on speaker-phone and our whole office was SPEECHLESS! Were these charts part of the Lehman Brothers’ BETS that they placed against your neighborhood? (You saw the documentary on MSNBC, right?)
In other words, banks have also been foreclosing on you, not based on your income and ability to pay, but on PROBABILITY CHARTS that suggest you’re a dead-beat … based on what your neighbor down the street did.
And that was a day in the life of a loan modification processor, like me. Well, all that is about to change, folks. Just today, my colleagues told me, there is talk on several business blogs that some of the bank CEO’s are about to be indicted and will have to go to prison.
via Foreclosureblues
via Foreclosureblues
via Foreclosureblues
One of the sorry reminders of the decline of the rule of law in the United States is the frequency with which incidents of what look like document forgeries take place in foreclosure cases. The fact that a now-shuttered subsidiary of Lender Processing Services, a vendor to the servicing industry, had a price list for creating mortgage-related documents out of whole cloth attests to the long-standing demand for this sort of product.
The reason for this activity is simple. As we’ve stressed in various posts, in so-called private label securitizations (the non-Fannie/Freddie type), a great deal of evidence indicates that the originators and packagers of these deals did not bother complying with the contracts they created to govern these transactions on a widespread, perhaps pervasive basis sometime after 2003. And their shortcomings only come to light in foreclosures, and then (possibly) if the foreclosure is contested. Given how low foreclosure rates were historically, this was a risk the securitization industry seemed willing to take, and it is now reaping the fruit of this short-sighted bet.
The big problem for servicers and trustees (the parties that are responsible for the trust that holds the assets of the securitization) is that the pooling and servicing agreement which governs the securitization required that the note (the borrower’s IOU) be transferred though a specific set of parties by a specified time not all that long after the deal closed. Increasingly savvy anti-foreclosure lawyers recognize that the party attempting to foreclose may not have the legal standing to do so.
A new development is that the US Bankruptcy Trustee, which is part of the Department of Justice, has started poking around the nether world of slipshod and possible made-up documents, and is asking banks to explain what they are up to. These inquiries may be paving the ground for broader-based action.
The case in question is a Connecticut Chapter 13 filing (hat tip April Charney).
US Trustee Motion in CT for 2004 Examination
DeutscheBank purports to be the trustee for a particular 2005 mortgage securitization which contains the mortgage at issue. This is a partial list of the documentation problems; the motion itself makes for instructive reading:
In the first filing, Deutsche provides a copy of an undated promissory note which is not made out to the trust but the originator. A few days later, Deutshce filed an objection to the debtor’s plan of reorganization, and in it said the mortgage (the lien, not the note) had been recorded as transferred from the originator to Sand Canyon (a unit of Option One) in 2005 and then transferred to Deutsche less than two weeks before the bankruptcy filing. Note that a 2010 transfer is well outside the time parameters stipulated in the pooling and servicing agreement.
The borrower’s side asks what happened to the note, since there is no evidence it was transferred.
Several months later, Deutsche shows up in court with the usual fix for this sort of problem, an allonge (an attachment to a note that is so firmly secured that it is supposed to be inseparable to allow extra room for signatures. Query if the allonge were properly attached, how would it be possible to make a copy of the original note and not see at least part of the allonge?)
The truly creative part is these documents include an assignment of mortgage dated June 11, 2010, but effective as of May 1, 2005. I never knew law offices had time machines as part of their standard equipment. The trustee separately questions the 2010 assignment, since it was signed by an employee of Sand Canyon, when Sand Canyon did not own any mortgages or mortgage servicing rights at that point in time.
Even though the bankruptcy trustee is merely requesting a Rule 2004 examination (which means it wants someone from Deutsche to appear and answer questions about the case under oath), it is clear that he does not like what he sees so far:
The United States Trustee has reviewed the documents filed by Deutsche in this case and
has concerns about the integrity of those documents and the process utilized by Deutsche….Bankruptcy Courts have discussed the need for secured lenders to provide accurate information in filings before the Court… Consequently, “cause” exists authorizing the issuance of a subpoena to compel document production under Bankruptcy Rules 2004(c) and 9016…
The US Trustee has asked for a pretty extensive list of documents related to this bankruptcy. I’d love to be a fly on the wall and see the Deutsche employee try to explain his way out of this one.
LOS ANGELES – The foreclosure crisis is getting worse as high unemployment and lackluster job prospects force homeowners in an increasing number of U.S. metropolitan areas into dire financial straits.
In Seattle, Houston and Chicago, cities that were relatively insulated from foreclosures early on in the housing bust, a growing number of homeowners are falling behind on mortgage payments and finding themselves on the receiving end of foreclosure warnings. Others have already seen their homes repossessed by lenders.
All told, foreclosure activity jumped in 149 of the country’s 206 largest metropolitan areas last year, foreclosure listing firm RealtyTrac Inc. said Thursday.
The firm tracks notices for defaults, scheduled home auctions and home repossessions — warnings that can lead up to a home eventually being lost to foreclosure.
Job loss, rather than time-bomb mortgages resetting to higher payments, has become the main driver behind rising foreclosures.
“We’ve actually had a sea change in what’s causing foreclosures, from the overheated home prices and bad loans to a second wave of foreclosures actually caused by unemployment and economic displacement,” says Rick Sharga, a senior vice president at RealtyTrac.
The Houston-Sugar Land-Baytown metropolitan area in Texas saw its foreclosure rate jump 26 percent from 2009, the largest increase among the top 20 biggest metro areas, the firm said.
Seattle-Tacoma-Bellevue, in Washington, ranked second with an increase of nearly 23 percent, while the Atlanta-Sandy Springs-Marietta metro area in Georgia was third with a 21 percent bump.
In the Chicago-Naperville-Joliet metropolitan area, foreclosure activity rose 16 percent, while home repossessions climbed nearly 20 percent, RealtyTrac said.
“As the economy and unemployment improve, you’ll see those markets recover fairly quickly, whereas you’re still going to have a bit of a hangover in places like California, Florida and Nevada,” Sharga said.
Those states, and Arizona, remain the country’s foreclosure hotbeds, accounting for 19 of the top 20 metropolitan areas with the highest foreclosure rates in 2010.
Still, foreclosure activity in many of the metro areas in these states actually declined last year.
Las Vegas-Paradise, Nev., registered the highest foreclosure rate in the nation, with one in every nine households receiving a foreclosure-related notice in 2010 — nearly five times the national average. But the metropolitan area’s foreclosure activity fell 7 percent from the prior year.
Three California metro areas posted among the biggest annual drops in foreclosure activity: Riverside-San Bernardino-Ontario, down 20 percent; San Diego-Carlsbad-San Marcos, down 17 percent; and, Los Angeles-Long Beach-Santa Ana, down 16 percent.
A big reason for the decline is lenders took steps to delay foreclosure actions in these states as they sought to manage the flow of troubled properties coming onto their books. In the final months of last year, several lenders went further, temporarily halting foreclosure activity to deal with allegations of improper evictions.
Most banks have since resumed taking action against borrowers behind in payments, however, and the pace of foreclosures is expected to pick up this year and ultimately outpace 2010 levels.
“We believe we’re going to see an abnormally high growth of foreclosure activity in the first quarter and we do expect that 2011 will be another record year for foreclosure activity and bank repossessions,” Sharga said, adding he projects bank repossessions will rise by at least 20 percent.
That’s likely to drag down home values further, potentially pushing more homeowners into negative equity — when a borrower owes more on their mortgage than the market value of their home.
About 2.4 million U.S. homeowners have only 5 percent or less equity in their homes, according to data from CoreLogic.
Lenders took back 1 million properties in 2010, and no metro area saw more homes repossessed by lenders than Phoenix-Mesa-Scottsdale in Arizona.
Some 55,372 properties were taken back by lenders there last year, up 17 percent from the year before.
The Chicago metro area was second, followed by the Detroit-Warren-Livonia metro area in Michigan. Its home repossessions rose 19 percent.
Some folks have told me that they got their modification approved using a California Civil Code 998.
Now a 998 traditionally was used in personal injury cases to put pressure on the insurance companies to settle rather than incur both sides of the litigation cost. But it applies to all civil actions. I see the advantage of a 998 in that you don’t have to file litigation to use it. This could be a useful way to start negotiation without incurring the expense of a lawsuit. Once again it costs nothing to try. The other benefit is it may get your case transferred to legal rather than some loss mitigator hence a better result in a faster time frame.
1. What is a California Code of Civil Procedure Section 998 offer to compromise?
CCP Section 998 is a statute that gives litigants leverage to settle cases. The mechanism of Section 998 is for a party to make an offer to compromise and settle a case. The offer must be in writing and must offer something in consideration for settlement. This does not necessarily need to be a dollar amount but must be something of value, such as an offer to waive costs.
There can be significant consequences to failing to accept an offer to compromise and then not securing a judgment or award better than the offer. For plaintiffs who refuse a defendant’s offer and then either suffer a defense verdict or a judgment or award less than that offer, they do not recover their post-offer statutory costs normally allowed by CCP Sections 1032 and 1033.5, and they must pay the defendant’s same costs. Further, they may be required to pay the defendant’s “actually incurred and reasonably necessary” expert witness costs, including costs incurred pre-offer.1 For defendants who reject a plaintiff’s offer and then suffer a verdict or judgment in excess of the value of the offer, they may be required to pay the plaintiff’s statutory costs, as well as post-offer expert witness costs. In personal injury actions, defendants also will be liable for prejudgment interest.2
A statutory offer also can be a strategic tool to force a settlement. Applied with care and foresight, counsel can structure the value of an offer as a reasonable settlement amount, which then puts pressure on the other party to either accept the offer or risk having to reimburse the other side’s regular and expert witness costs.
It is no secret that the United States remains in the throes of one of the worst “mortgage meltdowns” in history. The problem is so widespread that the numbers are almost hard to believe. The consensus is that it will take years for the effects of this economic disaster to be unwound through any process, whether free market, government run or a combination of both. Just days ago, CNBC reported that the monthly foreclosures for January was an ALL TIME HIGH. This story ran simultaneously with the emergence of allegations of widespread “robo-signing” borrowerrs into foreclosure without regard to the actual status of their loan.
In the case of the wrongful foreclosure, the fact pattern generally goes as follows. First, borrower takes out a mortgage on his property and lender takes back a promissory note and deed of trust. Second, the borrower misses one or two payments, or falls behind one or two payments, and then catches up. Third, the lender notifies the borrower that the loan is in default, fails to reinstate the loan, and begins to generate fees and costs that must be paid by the borrower — before the lender will reinstate its loan — including but not limited to: (1) attorneys fees; (2) default interest; (3) late charges; (4) appraisal fees and (5) other costs. The lender goes on to threaten the buyer with foreclosure if the buyer fails to pay all the banks fees and costs, in addition to the principal and interest on the underlying loan this is called reinstatement.
What’s the big deal? These “default” fees and costs are quickly piled on, eroding any equity that the borrower may have slowly built up on the property (in effect paying it to the Bank), draining the borrower’s bank account and leaving the borrower unable to make up the payments or resist foreclosure. On the bank side, it’s a beautifully profitable transaction, they bleed the borrower dry, and then take the property back. Additionally they could not even initiate foreclosure in California till they comply with civil code 2923.5. One problem…..it’s illegal.
The recent case against Bank of America was based on abusive practices such as these, and resulted in a settlement of $108 million, affecting nearly 200,000 borrowers!
In California, borrowers also have the protection of a special statute, California Civil Code Section 2924c. California Civil Code § 2924c applies to any obligation secured by a deed of trust on real property, and permits the trustor, who is in default under the terms of the deed of trust, to cure the default unilaterally, by paying to the beneficiary or the successor in interest:
“(A) all amounts of principal, interest, taxes, assessments, insurance premiums, or advances actually known by the beneficiary to be, and that are, in default and shown by the beneficiary to be, and that are, in default and shown in the notice of default, under the terms of the deed of trust or mortgage and the obligation secured thereby, (B) all amounts in default on recurring obligations not shown in the notice of default, and (C) all reasonable costs and expenses, subject to subdivision (c), which are actually incurred in enforcing the terms of the obligation, deed of trust, or mortgage, and trustee’s or attorney’s fees, subject to subdivision (d), other than the portion of principal as would not then be due had no default occurred…”
If the trustor cures the default pursuant to this section, then “all proceedings theretofore had or instituted shall be dismissed or discontinued and the obligation and deed of trust or mortgage shall be reinstated and shall be and remain in force and effect, the same as if the acceleration had not occurred”. Bottom line, if a borrower tenders payment to the lender as required under 2924c, reinstatement is mandatory!
A recently filed a class action in LA Superior Court against Greystone Bank for alleged violations of California Civil Code 2924c. Read Complaint. If you are a borrower that has been: (1) subjected to, or threatened with wrongful foreclosure, or (2) forced to pay improper fees and costs in order to avoid foreclosure, by Greystone Bank or Greystone Servicing Corporation, we would like to talk with you about your situation.
Also, if you have had a wrongful foreclosure experience with any other large bank, other than Greystone Bank or Greystone Servicing Corporation, we would like to talk with you about your experience as well. Call Southern California 909-890-9192 in Northern California 925-957-9797
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MERS v. Nebraska Dept of Banking and Finance – State Appellate, MERS demands to be recognized as having no actionable interest in title. 2005, Cite as 270 Neb 529
Merscorp, Inc., et al., Respondents, v Edward P. Romaine, & c., et al., Appellants, et al., Defendant the fact that the Mortgage and Deed of Trust are separated is recognized (concurring opinion). While affirming MERS could enter in the records as “nominee”, the court recognized many inherent problems. Rather than resolve them, they sloughed them off to the legislature. 2006
The Boyko Decision -Federal District Judge Christopher Boyko of the Eastern Division of the Northern District of Ohio Federal Court overturns 14 foreclosure actions with a well reasoned opinion outlining the failure of the foreclosing party to prove standing. This decision started the movement of challenging the standing of the foreclosing party. Oct 2007
Landmark National Bank v Kesler – KS State Supreme Court – MERS has no standing to foreclose and is, in fact, a straw man. Oct 2009.
The importance of the findings of the Supreme Court of Kansas cannot be overemphasized. It is generally the law in all states that if the law of one state has not specifically addressed a specific legal issue that the court may look to the law of states which have. The Kansas Court acknowledged that the case was one of “first impression in Kansas”, which is why the Kansas Court looked to legal decisions from California, Idaho, New York, Missouri, and other states for guidance and to support its decision. As we have previously reported, the Ohio Courts have looked to the legal decisions of New York to resolve issues in foreclosure defense, most notably issues of standing to institute a foreclosure.
It is practically certain that this decision will be the subject of review by various courts. MERS has already threatened a “second appeal” (by requesting “reconsideration” by the Supreme Court of Kansas of its decision by the entire panel of Judges in that Court). However, for now, the decision stands, which decision is of monumental importance for borrowers. It thus appears that the tide is finally starting to turn, and that the courts are beginning to recognize the extent of the wrongful practices and fraud perpetrated by “lenders” and MERS upon borrowers, which conduct was engaged in for the sole purpose of greed and profit for the “lenders” and their ilk at the expense of borrowers.
MERS, Inc., Appellant v Southwest Homes of Arkansas, Appellee The second State Supreme Court ruling – AR 2009
BAC v US Bank – FL Appellate court upholds the concept of determining the standing of the foreclosing party before allowing summary judgement. All cases in FL must now go through this process. If you want to have fun, read the plaintiff’s brief. 2007
Wells Fargo NAS v Farmer Motion to vacate in Supreme Court, Kings County, NY 2009
In Re: Joshua & Stephanie Mitchell – US Federal Bankruptcy Court, NV 2009
In Re: Wilhelm et al., Case No. 08-20577-TLM (opinion of Hon. Terry L. Myers, Chief U.S. Bankruptcy Judge, July 9, 2009) – Chief US Bankruptcy Judge, ID – MERS, by its construction, separates the Deed from the Mortgage
MERS v Johnston – Vermont Superior Court Decision
Wells Fargo v Jordon – OH Appellate Court
Weingartner et al v Chase Home Finance et al – US District Court (Nev): Two pro se plaintiffs sue for relief re: MERS assignments. Very technical decision but two things are apparent. First, the court has little patience for pro se plaintiffs who throw everything out there wasting the court’s time and second, even though the court threw out most of what the plaintiffs were arguing for, they did side with the plaintiff. Provides a good insight to the court’s reasoning vis a vis MERS assignments. Also makes clear you shouldn’t try this from home. Please seek legal counsel.
Schneider et al v Deutsche Bank et al (FL): Class action suit (the filing) seeking to recover actual and statutory damages for violations of the foreclosure process. Provides an excellent description of the securitization process and the problems with assignments. Any person named as a defendant in a suit by Deutsche Bank should contact the firms involved for inclusion in this suit.
JP Morgan Chase v New Millenial et. al. – FL Appellate which clearly demonstrates the chaos which can ensue when there is a failure to register changes of ownership at the county recorder’s office. Everyone operates in good faith, then out of nowhere, someone shows up waving a piece of paper. The MERS system, while not explicitly named, is clearly the culprit of the chaos. 2009
In Re: Walker, Case No. 10-21656-E-11 – Eastern District of CA Bankruptcy court rules MERS has NO actionable interest in title. “Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.” “MERS could not, as a matter of law, have transferred the note to Citibank from the original lender, Bayrock Mortgage Corp.” The Court’s opinion is headlined stating that MERS and Citibank are not the real parties in interest.
In re Vargas, 396 B.R. at 517-19. Judge Bufford made a finding that the witness called to testify as to debt and default was incompetent. All the witness could testify was that he had looked at the MERS computerized records. The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit. See id. at 517-20. The low level employee could really only testify that the MERS screen shot he reviewed reflected a default. That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.
In Re: Joshua and Stephanie Mitchell, Case No. BK-S-07-16226-LBR [U.S. Bankruptcy Court, District of Nevada, Memorandum Opinion of August 19, 2008]. Federal Court in Nevada attacked MERS’ purported “authority”, finding that there was no evidence that MERS was the agent of the note’s holder
Mortgage Electronic Registration Systems, Inc. v. Girdvainis, Sumter County, South Carolina Court of Common Pleas Case No. 2005-CP-43-0278 (Order dated January 19, 2006, citing to the representations of MERS and court findings in Mortgage Electronic Registration Systems, Inc. v. Nebraska Dept. of Banking and Finance, 270 Neb. 529, 704 NW 2d. 784). As such, ALL MERS assignments are suspect at best, and may in fact be fraudulent. The Court of Common Pleas of Sumter County, South Carolina also found that MERS’ rights were not as they were represented to be; that MERS had no rights to collect on any debt because it did not extend any credit; none of the borrowers owe MERS any money; that MERS does not own the promissory notes secured by the mortgages; and that MERS does not acquire any loan or extension of credit secured by a lien on real property.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. v. SAUNDERS 2010 ME 79 Docket: Cum-09-640.Supreme Judicial Court of Maine. | Ordered dated August 12, 2010. We conclude that although MERS is not in fact a “mortgagee” within the meaning of our foreclosure statute, 14 M.R.S. §§ 6321-6325, and therefore had no standing to institute foreclosure proceedings, the real party in interest was the Bank and the court did not abuse its discretion by substituting the Bank for MERS. Because, however, the Bank was not entitled to summary judgment as a matter of law, we vacate the judgment and remand for further proceedings.
MERS ‘AGENT’ PREVIOUS MTG FRAUD SCHEME| Mortgage Electronic Registration Systems, Inc. v. Folkes, 2010 NY Slip Op 32007 – NY: Supreme Court The settlement agent on all of the MERS documents was listed as Peter Port, Esq., undeniably plaintiffs agent. According to an affidavit, with documents attached from Ms. Nichole M. Orr, identified as an Assistant Vice President and Senior Operational Risk Specialist for Bank of America Home Loans, the successor-in-interest to plaintiff America’s Wholesale Lender (April 1, 2010)[1] certain wire transfers were made on November 23, 2004 to Mr. Port. The money appears to have come from an account with JP Morgan, but one of the documents also shows, inexplicably, that Mr. Port then sent $435,067.73 of this money to Cheron A. Ramphal at 14917 Motley Road, Silver Springs, MD. It should also be noted, as it was in the decision of February 5, 2008 by Judge Payne, that Mr. Port pled guilty in March 2006 in Federal District Court in New Jersey to providing false documents in a scheme to commit mortgage fraud.
‘NO PROOF’ MERS assigned BOTH Mortgage and NOTE to HSBC|HSBC Bank, etc. v. Miller, et al. The “Assignment of Mortgage,” which is attached as exhibit E to the opposition papers, makes no reference to the note, and only makes reference to the mortgage being assigned. The Assignment has a vague reference to note wherein it states that “the said assignor hereby grants and conveys unto the said assignee, the assignor’s beneficial interest under the mortgage, “but this is the only language in the Assignment which could possibly be found to refer to the note.
Contrary to the affirmation of Ms. Szeliga in which she represented, in paragraph 17, that there was language in the assignment which specifically referred to the note, the assignment in this case does not contain °a specific reference to the Note.
In light of the foregoing, the Court is satisfied that there is insufficient proof to establish that both the note and the mortgage have been assigned to the Plaintiff, and therefore, it is hereby ORDERED that the Plaintiff has no standing to maintain the foreclosure action; and it is further ORDERED that the application of Defendant, Jeffrey F. Miller, to dismiss is granted, without prejudice, to renew upon proof of a valid assignment of the note.
Judge ARTHUR SCHACK’s COLASSAL Steven J. BAUM “MiLL” SMACK DOWN!! MERS TWILIGHT ZONE! | HSBC BANK v. Yeasmin The MERS mortgage twilight zone was created in 1993 by several large “participants in the real estate mortgage industry to track ownership interests in residential mortgages. Mortgage lenders and other entities, known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system.
UNION BANK CO. v. NORTH CAROLINA FURNITURE EXPRESS, LLC.: MERS ‘GETS FORECLOSED’| ASSIGNS NADA TO BAC fka COUNTRYWIDE OHIO COURT OF APPEAL: While an assignment typically transfers the lien of the mortgage on the property described in the mortgage, as BAC acknowledged in its reply brief, an assignee can only take, and the assignor can only give, the interest currently held by the assignor. R.C. 5301.31. With that stated, it is clear under the facts of this case that BAC never obtained an interest in the property; thus, it could not have been substituted as a party-defendant in the 2008 foreclosure action. Here, with respect to the 2008 foreclosure action, the date the last party was served with notice was on January 28, 2009, which was almost six months before the purported assignment from MERS to BAC. Next, on March 11, 2009, the trial court issued a judgment entry of default against MERS foreclosing on its interest in the property. Once again, this default judgment was entered against MERS almost three months before the purported assignment from MERS to BAC occurred. The effect of this default judgment against MERS resulted in MERS having “no interest in and to said premises and the equity of redemption of said Defendants in the real estate described in Plaintiff’s Complaint shall be forever cut off, barred, and foreclosed.” (2008 CV 0267, Mar. 10, 2009 JE). Nevertheless, according to the documents filed by BAC to evidence its assignment from MERS, MERS assigned its interest to BAC on June 1, 2009. (2009 CV 312, Oct. 7, 2009 JE, Ex. A). Consequently, as a result of the already entered default judgment against MERS, when BAC was assigned MERS’ interest in the property on June 1, 2009, BAC did not receive a viable interest in the property. See Quill v. Maddox (May 31, 2002), 2nd Dist. No. 19052, at *2 (mortgagee’s assignee failed to establish that it had an interest in the property, as mortgagee’s interest was foreclosed by the court before mortgagee assigned its interest to assignee, which could acquire no more interest than mortgagee held). Thus, we find that it was reasonable for the trial court to have denied the motion to substitute BAC as a party-defendant for MERS given its lack of interest in the property.
HSBC v. Thompson: HSBC’s Irregularities: Mortgage Documentation and Corporate Relationships with Ocwen, MERS, and Delta Even if HSBC had provided support for the proposition that ownership of the note is not required, the evidence about the assignment is not properly before us. The alleged mortgage assignment is attached to the rejected affidavits of Neil. Furthermore, even if we were to consider this “evidence,” the mortgage assignment from MERS to HSBC indicates that the assignment was prepared by Ocwen for MERS, and that Ocwen is located at the same Palm Beach, Florida address mentioned in Charlevagne and Antrobus. See Exhibit 3 attached to the affidavit of Chomie Neil. In addition, Scott Anderson, who signed the assignment, as Vice-President of MERS, appears to be the same individual who claimed to be both Vice-President of MERS and Vice-President of Ocwen. See Antrobus, 2008 WL 2928553, * 4, and Charlevagne, 2008 WL 2954767, * 1.
MERS v. TORR NY JUDGE SPINNER DENIES Deutsche & MERS for NOT Recording Mortgage, Make up Affidavit and Assignment! MERS ‘QUIET TITLE’ FAIL: To establish a claim of lien by a lost mortgage there must be certain evidence (e.s.) demonstrating that the mortgage was properly executed with all the formalities required by law and proof of the contents (e.s.) of such instrument. … Here Burnett’s affidavit simply states that the original mortgage is not in Deutsch Bank’s files, and that he is advised(e.s.) that the title company is out of business. Burnett gives no specifics as to what efforts were made to locate the lost mortgage…. More importantly, there is no affidavit from MLN by an individual with personal knowledge of the facts that the complete file concerning this mortgage was transferred to Deutsch Bank and that the copy of the mortgage submitted to the court is an authentic copy of Torr’s Mortgage.” (e.s.)
LPP MORTGAGE v. SABINE PROPERTIES: FINAL DISPOSITION| NO Evidence ‘MERS’ Owned The NOTE, Could NOT ASSIGN IT NY SUPREME COURT: FINAL DISPOSITION
Here, there are no allegations or evidence that MERS was the owner of the note such that it could assign it to LPP. Thus, the assignment from MERS was insufficient to confer ownership of the note to LPP and it has no standing to bring this action. Kluge v. F umz ~1, 45 AD2d at 538 (holding that the assignment of a mortgage without transfer of the debt is a nullity); Johnson v. Melnikoff, 20 Misc3d 1142(A), “2 (Sup Ct Kings Co. 2008), n. 2, afr, 65 AD3d 519 (2d Dept 20 1 Oj(noting that assignments by MERS which did not include the underlying debt were a legal nullity); m e Elect ro pic Registration Svstem v, Coakley, 41 AD3d 674 (2d Dept 2007)(holding that MERS had standing to bring foreclosure proceeding based on evidence that MERS was the lawful holder of the promissory note and the mortgage).
Thus, even assuming arguendo that the language of the assignment from MERS to LPP could be interpreted as purporting to assign not only the mortgage but also the note, such assignment is invalid since based on the record, MERS lacked an ownership interest in the note. $ee LaSalle Bank Nat. Ass’n v. Lamv, 12 Misc3d 1191(A), “3 (Sup Ct Suffolk Co. 2006) (noting that “the mortgage is merely an incident of and collateral security for the debt and an assignment of the mortgage does not pass ownership of the debt itself ’);
WACHOVIA BANK, NATIONAL ASSOCIATION, against –STUART BRENNER, et aI. : Defendant’ s answer contains a defense of “lack of standing.” Plaintiff has failed to establish it was the holder of the note and the mortgage securing it when the action was commenced. In that regard, plaintiff relies on an undated assignment of the mortgage by MERS as nominee acknowledged by a Texas notary on July 18, 2009. The note sued on does not contain an indication it has been negotiated. The undated assignment by MERS contains a provision at the assignment of the mortgage is “TOGETHER with the notes described in said mortgage.” The record before me is devoid of proof that MERS as nominee for purposes of recording had authority to assign the mortgage. However, assuming it had such authority since it is a party to the mortgage and such authority might be implied , there has been a complete failure to establish MERS, as a non-party to the note, to negotiate its transfer. A transfer of the note effects a transfer of the mortgage MERS vs. Coakley, 41 AD3 674), the assignment of a mortgage without a valid transfer of the mortgage note is a nullity(Kluge vs. Fugazv, 145 AD2 537).
Thanks to Charles Cox for forwarding this article
By David McLaughlin – Jan 25, 2011 4:19 PM PT
A Bank of America Corp. unit, ReconTrust Co. N.A., was ordered by a Nevada judge to temporarily stop foreclosures in the state that aren’t approved by a court order.
Judge Robert W. Lane in Nye County, Nevada, issued a preliminary ruling that blocks ReconTrust from conducting nonjudicial foreclosures until he holds a hearing Feb. 28 on whether to make the ban permanent, according to a Jan. 20 order provided by the court. The injunction was sought in a Nevada homeowner’s lawsuit against Bank of America and ReconTrust.
Stopping the foreclosures is necessary to prevent the “irreparable injury” that would result from “unlawful” seizure of the plaintiff’s home by ReconTrust Co., the judge wrote. The ruling applies to any real estate or personal property in Nevada.
In nonjudicial foreclosures, lenders can seize property without a court order. Some states require a court order, other don’t, and in some, including Nevada, both are used, according to RealtyTrac, which collects foreclosure data. Nevada foreclosures are primarily executed out of court, according to RealtyTrac’s website.
‘Ecstatic’
Suzanne North, the homeowner suing Bank of America and ReconTrust, said in a telephone interview that she’s “ecstatic” about the ruling. She received a default notice after seeking a loan modification from Bank of America and going through a trial period. When she received the notice at her Pahrump, Nevada, home, she contacted the bank and learned she didn’t qualify for the modification, she said.
“I think it’s great because I’m not the only one in this boat,” North said about the judge’s order.
Nevada had the highest U.S. foreclosure rate in 2010 for the fourth consecutive year, with more than 9 percent of the state’s households receiving a filing. Arizona was second at 5.7 percent and Florida third at 5.5 percent.
Jumana Bauwens, a Bank of American spokeswoman, said ReconTrust faced such an order in Utah and “prevailed in challenging that order in federal court.”
“Until the current situation is resolved, ReconTrust intends to comply with the order,” Bauwens said by e-mail. She didn’t respond to a question about how many properties are affected by the ruling.
John Christian Barlow, a lawyer who represents North, said the lawsuit claims ReconTrust doesn’t have the authority to foreclose on homes in Nevada. Bank of America and other banks use ReconTrust to seize homes in Nevada, he said. Barlow said he will seek class-action, or group, status for the lawsuit.
“If a company’s going to foreclose, they’ve got to do it right,” he said.
The case is North v. Bank of America Corp., CV31506, Fifth Judicial District, Nevada, Nye County.
Editors: Fred Strasser, Charles Carter
To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net
To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net
Posted on January 17, 2011 by Foreclosureblues
How accurate are property records?
By Tom Harvey
The Salt Lake Tribune
Published: January 16, 2011 04:41PM
Updated: January 16, 2011 01:01AM
Chris Detrick | The Salt Lake Tribune
Walter Keane poses for a portrait at his office Friday January 7, 2011. Keane has filed lawsuit that resulted in homeowners getting title to their property even if they owed someone money because of flaws introduced into the nation’s property recording system by an entity created by the Mortgage Bankers Association.
A Utah court case in which the owner of a Draper townhouse got clear title to the property, even though he still owed $132,000 on it, raises new legal and financial questions about a property-records database created by mortgage bankers.
The award of a title free of liens means that whoever owns the promissory note on the Draper property — likely a group of faraway investors — no longer has the right to foreclose to collect on a delinquent loan. Indeed, the townhouse owner has sold the property and kept the money. Those who own the promissory note probably don’t even know what occurred.
Decisions such as the one 3rd District Judge Glen Iwasaki handed down in the Draper case could have a big impact as the state wends its way through hundreds of lawsuits involving foreclosures, loans on properties for more than they’re worth and predatory lending practices that led Utahns to lose their homes as the real-estate bubble burst.
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Quiet title • Last year, the owner of the Draper property contacted attorney Walter T. Keane to help him deal with lenders, though Keane won’t say what the problem was and the owner declined an interview request.
Keane filed what’s called a “quiet title action,” a lawsuit in which the owner seeks clear title to a property free of liens by lenders or others.
In Utah, when you take out a mortgage loan to buy a home, you sign a promissory note held by the lender and a deed of trust that is recorded at the county recorder’s office. The promissory note gives the holder the right to collect payments on the loan. The recording of the deed of trust gives the lender the right to foreclose on the property if you default on the loan.
A trustee appointed by the lender also is recorded with the county and actually holds legal title to your property subject to the conditions of the trust deed.
The lawsuit over the title to the townhouse named Garbett Mortgage and Citibank FSB as the holders of promissory notes as recorded on trust deeds filed with the recorder’s office. Integrated Title Services was listed as trustee of the Garbett Mortgage trust deed, while First American Title was the trustee of the CitiBank trust deed.
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Trust deed tag-along • But there also was another entity listed on the trust deeds called the Mortgage Electronic Registration Systems (MERS). The Mortgage Bankers Association, the Washington, D.C.-based trade group that represents major mortgage lenders, created MERS in the mid-1990s.
MERS is a database where promissory note owners are recorded, with MERS itself then listed on trust deeds at county recorder offices as the “beneficiary” of the note instead of the real lenders or note owners.
The new arrangement greased the way for mortgages to be packaged together and sold to investors who were relieved of the need under the traditional system to record the true owner of the promissory notes and to pay the county recording fees, which average around $35. Attorneys charge MERS is largely an instrument to avoid paying fees every time a promissory note is sold and resold and eventually packaged with others and owned by group of investors.
During the latter part of the real-estate boom, hundreds of thousands of subprime loans were packaged and sold using the MERS system. MERS has registered about 31 million loans, the company’s chief executive said in congressional testimony in November. CEO R.K. Arnold also said in a 2009 deposition that the system had saved its members an estimated $2.4 billion that would have gone to county governments.
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Who’s the beneficiary? • Under the state’s quiet title laws, Keane said he did not have to name MERS or serve it legal papers in the lawsuit because it was not the legal owner of title to the property. Those were title companies. In addition, attorneys contend, MERS cannot be the “beneficiary” or holder of the promissory note because it readily has admitted it has no financial interest in any notes or mortgages.
Normally, a trustee named in a trust deed has a legal duty in Utah to the entity that holds the promissory note and for fair dealing with the homeowner. But in the townhouse case, First American Title filed a response to the quiet title action saying that it had no idea who had the right to collect payments on the promissory note, nor did it admit to knowing any other basic information about the property.
“The fact of the matter is First American Title doesn’t know who the beneficiary of the trust deed is and basically they disavow any interest in it,” Keane said. “It’s an acknowledgement [the recording system on this property is] a fiction, that they don’t have any real interest in it.”
Garbett Mortgage also told the court it no longer held an interest in the property. Integrated Title never filed a response to the lawsuit but did withdraw as a trustee with the Salt Lake County Recorder’s Office.
“Considering the owner of the property [the title companies who were trustees] failed to dispute the matter, and further considering that the original lender claims no further interest, the court nullified the trust deeds prior to setting any type of trial date,” Keane said.
So in the four months that the process took, the owner was able to gain title and deny the owners of his loan the ability to foreclose on the property for nonpayment. That means the promissory note owned by investors may be worth far less than they paid for it because it is no longer backed by an asset.
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Record reliability • MERS spokeswoman Karmelo Lejarde said MERS actually added reliability to the system of county recording offices.
“Prior to the creation of MERS [when servicers routinely held the mortgage lien for the note owner], the information in the public land records was not accurate due to delays in recording assignments or missing assignments that never got recorded,” she said in e-mail that appears to be a boilerplate response to questions about MERS’ role in the nation’s property registration system.
“With the MERS System, mortgage data is more accurate and title information more reliable. The MERS process creates accountability and transparency, helps keep costs low, reduces the risk of errors in record keeping and makes it easier to keep track of the lien if a loan is sold to other banks and investors.”
Gary Ott, the elected Salt Lake County recorder for the past 10 years, disagrees. He characterizes his office as a neutral party that permanently safeguards records, all of which are available for public inspection. In the past, parties were able to record each transaction or lien involving a property so a clear picture emerges of the title history of a property, Ott said, adding that with computerization, the recording is now nearly instantaneous once documents are received by his office.
“You can trust what you see at the recorder’s office because it’s up to this date, everything is in order,” said Ott, “and you can’t see at MERS if it’s in order at all. That’s the scary part, and people’s homes are something you shouldn’t mess with.”
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Default judgment • Keane said he’s been able to obtain quiet title in the same manner in two other cases. Another attorney, Abraham Bates, said he recently also won a quiet title action in a similar case in Salt Lake County.
In Bates’ case, a couple who owed $417,000 on a house whose value had dropped way below that also sued for quiet title.
He named the original lender and a title company listed as trustee on the trust deed. Because neither responded to the lawsuit as legally required, the judge granted the couple a default judgment that still must be verified in court, Bates said.
Bates said under Utah laws, it was not necessary to serve MERS legal papers, as it was not in the Draper townhouse case.
“MERS is not the beneficiary of the trust deed,” Bates said. “MERS did not make the mortgage loan.”
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New questions • While these decisions stripped the owners of the promissory notes of the ability to foreclose on the property to recoup missed payments, it does not preclude them from suing the people who signed the notes to try to recover lost monies.
But that action would open up a new line of questions about the MERS method of property recording, said Christopher Peterson, a University of Utah law professor who has made a national name for himself recently by questioning the legal foundations of MERS’ appearance in property-recording records and its role in foreclosures.
Under laws adopted by all 50 states, the owner of a “negotiable instrument” such as a promissory note must be in physical possession of the document, said Peterson. Otherwise it would be like someone trying to cash a photocopy of a check instead of the actual check.
“One cannot be a holder of a note unless one is in physical possession of that note,” he said.
But Peterson said evidence is coming out in courts that shows the actual promissory notes or mortgages signed by buyers were not transferred as the notes made their way into the mortgage-backed securities investment pools.
That could mean in these cases that no one is in a position to try to collect because the actual notes are lost or destroyed, potentially making some promissory notes investors think they hold worthless.
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Right to foreclose • Bates said he has more than 100 lawsuits pending over MERS-related questions and has hired more attorneys for his firm to handle the increasing load.
State courts have been more favorable than federal courts to homeowners seeking to halt foreclosure proceedings based on questions about MERS’ legal standing under state and federal laws, the attorneys say.
Rulings have gone different ways in different courts. But Bates said he and Peterson are teaming up to appeal a recent ruling by U.S. District Judge Tena Campbell that dismissed a lawsuit claiming MERS did not have the legal right to initiate foreclosure proceedings.
The attorneys are appealing Campell’s ruling as it relates to Utah law to the Utah Supreme Court. A decision will help sort out the issues with MERS over whether it actually can initiate foreclosures even if it does not have any financial interest in the promissory note, Bates said.
A ruling favorable to the homeowner “would be an absolute tsunami in terms of foreclosure in the state of Utah,” he said.
If MERS is not able to start a foreclosure action, “then there will be a brick wall put up over all nonjudicial foreclosures prosecuted in this state,” Bates said.
tharvey@sltrib.com
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What is MERS?
The Mortgage Bankers Association created the Mortgage Electronic Registration Systems, or MERS, in the mid-1990s. It is a database that holds the names of the entities that have a financial interest in a particular mortgage, such as investment funds that bought bundles of mortgages called mortgage-backed securities. MERS is recorded on many property deeds of trust in Utah as the “beneficiary” of a loan taken out on a property even if that loan is sold and resold many times. MERS allows the actual loan owners to avoid paying fees every time a loan is sold.
Who knows, maybe his resignation has something to do with this article where he admits that they have bifuricated the note from the mortgage and have been doing so for many years with the servicers,
As investors bought more and more loans in the secondary market, many of them began to contract with servicing
companies to handle loan servicing obligations. A servicer is a company that a mortgage loan investor hires to handle
payment processing, tax and insurance escrows, foreclosure and other matters related to the loan or the property. Often, the servicer is the same lender that originated the loan, sold the beneficial ownership in the secondary market and agreed to continue servicing the loan for the new beneficial owner.
For these servicing companies to perform their duties satisfactorily, the note and mortgage were bifurcated. The
investor or its designee held the note and named the servicing company as mortgagee, a structure that became standard. Some servicing companies have grown quite large, and a very active secondary market in servicing contracts has developed as well. Now more than $ 400 billion in servicing contracts trade annually.
A servicing contract is not an interest in real estate. Unlike a mortgage, it has nothing to do with legal title to the
property and is personal property under UCC § 9-106. Even before MERS, servicers had no reason to appear in the
public land records, except to receive the legal process they need to service loans properly.
The bifurcated structure worked fine for a long time, but the sheer volume of transfers between servicing
companies and the resulting need to record assignments caused a heavy drag on the secondary market. The burden
affected lenders, title companies, consumers and even local recorders. Assignment processing for the sale of a relatively modest loan portfolio can take up to six months to complete. Error rates as high as 33% are common. With the active secondary market in servicing contracts, more than four million loans are affected annually. Loan servicing can trade several times before even the first assignment in a chain is recorded, leaving the public land records clogged with unnecessary assignments. Sometimes these assignments are recorded in the wrong sequence, clouding title to the property.
see full article “There is Life on MERS”
MERS CEO R.K. Arnold Leaving Company
Submitted by Tyler Durden on 01/21/2011 14:23 -0500
Is the biggest fraud in the history of the US housing market about to come unglued? If so, take our prediction of a $100 billion total in future BofA rep and warranty reserves and triple it.
From the WSJ:
The chief executive of the privately-held Mortgage Electronic Registration Systems, or MERS, is planning to leave the company and an announcement could come within days, according to people familiar with the matter.
The company has been under fire by Congress and state officials for its role in the mortgage-document crisis. The firm’s board of directors has met in recent days to address the fate of the company and its chief executive, R.K. Arnold, the people said.
Arnold and other MERS executives didn’t respond to requests for comment. A MERS spokeswoman Friday declined comment. Arnold, a former U.S. Army Ranger, has served as the CEO and president of Merscorp Inc., the parent company of MERS, since 1998 and has been with the company since its inception 15 years ago, according to a corporate biography.
MERS was built by Fannie Mae (FNMA), Freddie Mac (FMCC), and several large U.S. banks in 1996 as an electronic registry of land records. That created a parallel database to facilitate the packaging of loans into securities that could be sold and re-sold without being recorded in local county courthouses, reducing costs for banks. The company’s name is listed as the agent for mortgage lenders on more than 65 million home loans.
But the company’s practices have begun to receive heavy scrutiny from state prosecutors and federal regulators, particularly in light of foreclosure-document problems that surfaced last fall. State and federal lawmakers have begun to consider bills that would make it harder for banks to use or foreclose on properties through MERS.
MERS’s legal standing also has been challenged by legal experts because it doesn’t own the underlying debt. Previously, the mortgage and the promissory note weren’t split between different parties.
Critics of the company have raised concerns over whether notes were properly assigned or tracked within the electronic system. Judges have also begun to question the company’s practices of “deputizing” hundreds of bank executives to handle foreclosures by naming them “vice presidents” of MERS.
Posted by Tracy Alloway on Jan 18 19:04.
Back in 2005 in Springfield, Massachusetts…
What happened next currently has the mortgage and housing market palpitating.
US Bank filed a foreclosure complaint on the above loan, but soon found itself embroiled in a legal battle which would become known as the ‘Ibanez’ case.
There’s a second mortgage — the LaRace mortgage — involved in the various court cases too but for simplicity’s sake, we’ve focused on Ibanez in the above graphics.
Is the outcome of the legal wrangling a positive?
Is it housing market catastrophe risk?
The truth, as ever, probably lies somewhere in between.
Skip this if you know what a mortgage note is
First a technical note. A mortgage loan actually consists of two parts; the note and the mortgage. The note is a legal obligation between borrower and lender, with the borrower promising to pay back a specific principal and interest amount over a certain amount of time. The mortgage is the security interest in property held by the lender.
When mortgage loans are securitised — turned into Residential Mortgage-Backed Securities (RMBS) — the notes are assigned to the securitisation trust, either in endorsed (signed) or blank (unsigned) form. Both the Ibanez and LaRace loans had assignments in blank to the MBS trustees, US Bank and Wells Fargo, respectively.
Cue the problems.
About a week and a half ago, the Massachusetts (MA) High Court judge sided with earlier rulings by the MA Land Court, and said the two trustee banks had not proven they have the right to foreclose on either the Ibanez or the LaRace loans.
One of the issues is the so-called ‘mortgage in blank’ procedure. In the Ibanez case, for instance, the last mortgage assignment with a full set of names on it is from Rose Mortgage to Option One. After that, the mortgage is assigned in blank throughout the securitisation. There’s no assignment with ‘US Bank’ on it anywhere, though the bank did try to go back and finish off the assignment after it moved to foreclose.
This, according to SNR Denton lawyer Stephen Ornstein, is pretty standard practice in Massachusetts — it’s called “confirmatory assignments” done “after the fact,” which in this instance would be foreclosure. (Interestingly, we don’t think the judge invalidated assignment in blank/confirmatory assignment altogether — it looks like the problem was confirmatory assignments done without prior assignment.)
But moving swiftly on…
The PSA fallback
Normally, a trustee might be able to overcome such an assignment issue by providing the schedule to the Pooling & Service Agreements (PSAs) which accompanied the securitisation of the relevant mortgages. These are part of the documentation made for every MBS transaction, and — it was hoped by the trustee banks — they could help prove that the mortgage note transfer took place before foreclosure.
But with the Ibanez mortgage, the PSA for the relevant MBS couldn’t be found. All they had was something called a Private Placement Memorandum (PPM), which was basically the marketing document for the deal. Not quite the same thing.
And with the LaRace mortgage, all Wells Fargo had was a redacted PSA schedule, without names, which had been sent to the SEC as part of the deal requirements.
Unsurprisingly, perhaps, the High Court judge ruled that the Ibanez PPM and the LaRace PSA only demonstrated “an intent” to transfer the mortgages to the MBS trusts, not legal evidence that they had actually done so.
Case closed
What we have in the Ibanez case, then, is a curious combination of a stricter interpretation of existing MA state law and extremely sloppy paperwork.
Unfortunately the latter is not likely to be unique — more on which later.
As for the wider impact — think ever-increasing timelines to foreclosure, not necessarily the collapse of the foreclosure process altogether. Massachusetts is one of 30 ‘title theory’ states (and non-judicial to boot), which means the lending bank holds the legal title to the property, in order to secure the debt. (By contrast in a lien theory state, the borrower keeps the legal title and the lender gets an interest)
This legal difference tends to lead to faster foreclosure times in title theory states, as the below from Deutsche Bank’s Ying Shen shows. The MA ruling, however, might end up pushing the foreclosure rate in title states closer to their lien counterparts.
It also pretty much destroys the concept put forth by the American Securitization Forum (ASF) that the mortgage follows the note, at least in title theory states. So it’s also a timely reminder that US real estate is still a hodge podge of state and local law.
As Deutsche’s Ying Shen and Steven Abrahams note:
Although the ruling focused on the narrow issues surrounding rights for a securitization trustee to foreclose loans in Massachusetts, it reveals a major weakness of the residential mortgage securitization framework: a one-size-fits-all securitization process may not conform with the documentation requirements governed by local real estate laws.
Indeed.
Sorting out the mess
This is the big one. CNBC’s John Carney rightly notes that foreclosing on the Ibanez and LaRace mortgages could still be extremely difficult for the trustees. In the Ibanez mortgage, for instance, one of the players in the securitisation chain (Lehman Brothers) doesn’t even exist anymore. Will US Bank be able to fix the chain of title given that part of it is now defunct? At what cost and/or length? Will they bother?
As Adam Levitin also points out, many PSAs will not be able to meet the standards set forth by the MA High Court. You know, things like stating names (ahem).
Meanwhile, we wonder if fixing the chain of title could invalidate the so-called Remic structure of mortgage trusts? Remics get tax-free status, but only if they do not acquire any new assets after the trust closes. Mending the chain of title could violate that condition, in which case MBS investors would see their investment distorted.
And finally, let’s go back 148 years
We’ll end with a very old (from a US perspective, anyway) warning.
It’s worth, after all, considering why all these standard securitisation practices — like assignment in blank — became standard in the first place. Unfortunately, and like many things, it usually boils down to time and money. Assignments in blank can help banks save on some paperwork and also avoid fees at real estate record offices.
But there is a trade-off.
Here’s a nice bit of 1863 MA law that’s quoted in an Ibanez Amicus brief:
The convenience which men might occasional find in leaving blanks in scaled instruments to be filled after delivery, would be but a slight compensation for the evils which would follow the abrogation of the ancient rule of the common law.
The end.
Related links:
Ibanez and securitization fail – Credit Slips
A court case to challenge securitisation standards – FT Alphaville
The MBS mess from the beginning – the deal docs – FT Alphaville
This entry was posted by Tracy Alloway on Tuesday, January 18th, 2011 at 19:04 and is filed under Capital markets. Tagged with foreclosure scandal, foreclosures, Ibanez case, lawsuits, MBS, mortgage scandal, mortgage servicers, Remic, rmBS, subprime. Edit this entry.
04:25 by John Galt. Filed under: Whatever
By John Galt
October 5, 2010
I know that a lot of fans of my writings are expecting another “get in yur bunker and clutch them thar guns and Bibles” type of story but this is, in my humble opinion, a reasonably well thought out picture of America just one to two years from now unless a massive if not tectonic shift in government and the apathy of the citizens occurs within the next ninety days. There will be readers from the lunatic left who will blame the events about to occur in our nation on those evil capitalists and bankers who were unwilling to work with the poor, downtrodden citizens and help them to save their homes, their property, and their standard of living. On the other hand the RINO right will blame excessive government meddling, insensitivity to the needs of the “system” to operate as it was with less regulation, and of course, the current administration for the upcoming disaster.
In reality it is you and I who are responsible for what is about to happen, because we voted for and trusted people into these positions within the economic and political realm to act as responsible caretakers of the power assigned to them, becoming too lazy to engage in oversight, too busy getting “more” in our homes and driveways if not more of a home than to participate and reject the policies and changes which have been inserted into our nation’s economic and political systems over the last eighty years.
Thus the question arises, how does the collapse of the housing system created by a closet Socialist in the person of one Franklin Delano Roosevelt, create the very power vacuum he and his ilk attempted to fill by packing the Supreme Court and creating legislative nightmares of which some still haunt us today? The system as envisioned with shared government oversight and participation within a system of banking and commerce has run full circle as many warned it would during the 1930′s. The insertion of the government as a participant in the marketplace all but guaranteed new standards for home lending on an almost annual basis initially, and an almost quarterly basis in the current era.
The Road Map History has Provided
“We stand at Armageddon, and we battle for the Lord.”
-Theodore Roosevelt, August 6, 1912 final line from the speech “A Confession of Faith” before the National Progressive Party convention
To understand where we are going as a society it is not necessary to rehash the goals of this administration nor the leftist elites who have been drifting our society towards a Statist form of government since 1893. The quote from the 1880′s book by Professor Richard Ely’s book An Introduction to Political Economy, Chapter V is still appropriate to this discussion:
“The danger to freedom appears to be a very real one. It is frankly admitted that up to a certain point there is a tendency on the part of government to improve as its functions increase. But would this hold with the indefinite extension of the sphere of government? Let us admit that our livelihood would depend on the efficiency of government all the force and energy which now go into private services would be turned into public channels. But what would happen if, in spite of all precautions, some unscrupulous combination should secure the control of government?”
The entirety of the socialist experiment is summed up in the statement above as I surmised in my piece of May 2009 titled “Blame Wisconsin” where I outlined how the Marxist/Progressive movement evolved from a test tube case environment in Wisconsin into a national ideal under Theodore Roosevelt. Fast forward to FDR, Truman, Kennedy, Johnson, Nixon, etc. and the evolution of our modern housing finance system should not be shocking nor as disturbing once you pause and reflect on a little history. The plan all along was to insure a universal standard of living for the lower 90% of the population where income distribution was approximately equal and the mercantile class with the cooperation of the banking system and Federal government would insure the economy would function adequately to provide equilibrium of opportunity while providing the mask of capitalism to cover for their exercise of power and oversight.
Fast forward to the era where we are in which began shortly after the Long-Term Capital Management (LTCM) which almost destroyed the financial system due to the Russian debt default in 1998 and has now culminated in the greatest era of financial strife for the U.S. economy since the Great Depression. The danger is this time that there is no safety net other than the threat of hyperinflation from the Federal Reserve and the guarantee that our government (aka, Taxpayers) will undertake any and all actions to preserve the system’s status quo, shaky as that is. Thus to preserve a standard of living being eroded by the very powers entrusted to oversee and manage the economy now lies with the ability or gullibility of the average citizen to accept the ideas about to be presented for the “common good.”
The Average American’s Perilous Addiction To Things
The conversion that evolved with the moral revolution of the 1960′s from a “Greatest Generation” economic model where saving and frugality were usurped by the Baby Boomers consumerism model of owning “stuff” including one or two homes, several cars, televisions, etc., even if the financial means were unavailable at that moment to acquire the goods desired. The economic theory of housing during this evolution included the false impression provided that real estate in the form of a home was an “investment” and that this item should be used not just as a home, but to build a nest egg for the future and if possible use it during the good times to leverage up and acquire more items or investments of any type.
As the past two decades have demonstrated, the average American citizen has become addicted to the art of acquisition, even if they can not afford the items in question by using leverage to spread the payments of months, years, or in the case of a home, decades. The model worked well with modest inflation from the post-Volcker era until the late 1990′s but when LTCM imploded, the managers of America’s and Europe’s financial system realized that the stakes needed to be raised and the accelerated use of credit by the citizenry was a necessity if the bankers were to recover their losses from both the Savings and Loan disaster coupled with the ill advised ventures within the developing world. Hence the creation of new investing instruments for average citizens to participate with plus the evolution of creative financing for real estate purchases or investing were developed. The creation of the first bubble worked beyond their wildest dreams as the tech bubble demonstrated in the late 1990′s, inflating equity markets in many nations to levels that were only dreamed of during that era. The popping of that bubble and the wealth destruction in conjunction with the terror attacks of September 11, 2001 only increased the desperation of the political and financial class, which helped to enhance the evolution of the “ownership society” President Bush envisioned and the bankers salivated over so profits could be as leveraged as much as their balance sheets.
The American citizen’s additional credit card guaranteed by GSE’s like Fannie and Freddie enabled many to take advantage of Greenspan’s new bubble in the last decade and instead of saving to plan for a second or retirement home, the first home was refinanced at a very low rate and the equity extracted to buy “things.” Some of those “things” Americans purchased were courtesy of the belief that this was the ground floor for a real estate boom and you had to get into it now as “real estate always goes up” and this was the time to lock in a mortgage for that budding vacation home, time share, or future retirement home now. I believe that part of the boom was the famous myth propagated by both Realtors and bankers alike was that real estate always goes up in price so you had best get your slice of the American Dream now. This belief fueled speculation not just by professional real estate investors but by middle class citizens who viewed home equity extraction as an excuse to acquire those things their years of hard work had left them “due” and an opportunity to join the upper strata of society without having to work as hard to obtain that distinction. These middle class “investors” figured out the house flipping game at the very end of the bubble, just as they had discovered again the joys of using home equity to purchase stocks and other diverse investments in the 2005-2008 era.
Those beliefs along with the total destruction of housing values and retirements for three generations of Americans co-existing in our society now provides the formula for a national will to accept new ideas to preserve what they believe they have always deserved. Thus one of those dangerous intersections in history is upon us again and the next ninety days will do more to determine the course than any action we have seen since the fateful events of 1859 and 1860.
Preserving the Status Quo With Change
The crisis we face tonight and through the first crisp winter days of the new year will move with dazzling speed and keep historians busy for decades writing about it. The news from Monday was bleak, between the crisis of the “robo-signers” in the processing of foreclosures at the various major institutions to the continuing deterioration of home purchases as report after report is issued by the government and the National Association of Realtors. The most disturbing report was from Amherst Securities, LLC in an article on DNSNews.com October 4th ( Amherst: One of Five Borrowers Could Lose Their Homes ) where they postulate:
If governmental policy on foreclosure prevention does not change, 11.5 million borrowers are in danger of losing their homes, according to the analysts at Amherst Securities Group LP.
The staggering figure put forth by the mortgage investment brokerage equates to one out of every five borrowers – an astronomical 20 percent default rate that Amherst says “politically cannot happen.”
1 in 5 gang, let that sink in. If you think that a change in policy will not occur to stop such an event, you, the reader are on crack. The United States government for all of its flaws, devious or not, is not ignorant nor are the political and banking elites of whom we have given charge to manage the economy. The first course of action that will be undertaken has already been rumored with the idea that spread like wildfire throughout the financial system today of a ninety day mortgage moratorium would be imposed by the Federal Government to allow the system to clean up the mess created by the back log of fraudulent and erroneous paper trails. Unfortunately for the government, this does nothing but forestall the day of reckoning as the loss of valuation for many of the distressed homeowners speculated on in the Amherst report above is so grave that even if the homeowners wore able to work out a “sponsored” refinancing program, they would not have any equity for twenty years if housing prices resumed their normal pace of price appreciation.
This means that more creative solutions will have to be engaged in and that is the danger I foresee in our immediate future. Thus “change” to preserve the status quo or to prevent millions more citizens from losing their homes and accompanying crashing of a large portion of the financial system will be the order of the day. What does that sort of action entail beyond the prior solutions postulated like forced forbearance, government loan modifications, or worse?
The “Or Worse” Solutions to Repair the Housing Crisis and Start of Our National Nightmare
Everything in this section is pure speculation on my part as the author, but when you look at some of the proposals of this administration and the financial community it is not that far fetched. The bottom line is that the American system used to finance and purchase homes is irrevocably broken. The blame can be spread to both political parties, the Wall Street Ponzi game, and the irresponsible behavior of the banking community which was initiated under the Gramm-Leach-Bliley Act and culminated with the then CEO of Goldman Sachs, one Hank Paulson the U.S. Treasury Secretary to be, persuading the government to release the limitations on leverage which allowed the mortgage and debt securitization industry to explode in less than two years. This expansion of the credit bubble did not lift all ships equally so the Congress stuck its nose under the tent and accelerated the reduction in standards which allowed totally unqualified buyers to purchase homes who now in turn are abandoning them or part of the problem by the millions.
Thus the solutions become quite obvious and palatable to the members of the financial community because their losses will be minimized if not eliminated and the future liabilities the responsibility of others. The first proposal I look for is a massive expansion of the Fannie Mae and Freddie Mac system under the auspices of a Republican House with strong support from the banking system and the administration to either merge the agencies and create a super housing authority or new GSE (Government Sponsored Enterprise). Within this newly chartered instrument, the government will buy upwards of ninety-five percent of all mortgages, securitized or not, on the market at no less than ninety cents on the dollar plus assume the role for one hundred percent of origination for all mortgages under $750,000 nationally. This would still leave the banking system with the “appearance” of having some private role in the mortgage origination business, while in reality less than 2% of all mortgages created would be their responsibility and they would have the ability to manage the qualifications as they used to, on a case by base basis with strict fiduciary oversight.
Once this super GSE is in place, the mortgages for all delinquent homeowners could be purchased using the power of the taxpayer and the process of selective forbearance begun. This is not only a process which relieves the banking system of the stress of mortgage servicing (unless they wish to act as a contractor to the government, which they would have to initially as the system is created) and the torrid pace of default, but installs a program where jobs are created for former employees who specialize in mortgage finance and accounting, this time though as a government employee. The process of forbearance would be relatively straightforward and the homeowner would be forced into an obligation of thirty to sixty years refinancing based on income, age, and geographical criteria. If the homeowner declines the terms, the government would foreclose then seize the property in question and using a newly expanded Internal Revenue Service have the ability to collect deficiency payments for upwards of a decade to recoup some of their lost investment. This might sound insane but this is the type of radical solution you should be looking for as the alternative is worse than the collapse of late 2008.
That is only the precursor of our national nightmare however.
Imagine a world where you must report to a government official in a bank or other financial institution, maybe even a government office building to apply for a mortgage. Think about the new “green” wave of regulatory bureaucracy plus OSHA style ergonomic designs which will be instituted to “protect” the government’s investment in you the homeowner. For example if a husband and wife of eight years with two children walked into a home that they felt they could afford, the government regulatory regime could determine that this particular home is not ergonomically friendly enough for their children and the transportation costs in carbon would be excessive as the husband and/or wife would live too far from their place of employment. Sound insane? Review the stories emanating from the Mother Country of Jolly Old England regarding absurd regulations and government meddling in their citizen’s daily affairs.
Take this one example then consider the consequences of Kelo v. City of New London decision which could force a homeowner who are current with their payments out of their homes as the Federal Government owns all of the properties within a subdivision and their presence disrupts the ideal of economic diversity because they did not need nor want a government mortgage and their inhabiting of that property could make the new residents feel inferior, thus causing emotional distress. Or worse, if the one homeowner refuses to sell to a potential government sponsored buyer because the seller feels the price is inferior to market conditions the government could force the price to meet the standards of the bureaucratically established level of financing to match the price or use eminent domain to seize the property at the price level some beanie head feels is “just” for the GSE to pay.
This goes far beyond the concepts of financing, buying, and selling homes however. The entire real estate industry will end up subservient to a government master in Washington, D.C. Want to build a new subdivision? Better submit the homes to a standardized review to the Department of Housing Development team. Want to modify your GSE financed home by building a tool shed in the back? Fill out GSE form 4417-E/109.1367 available at your local bank’s GSE department or Federal office building and pray they approve it before the apocalypse. Want to sell to the family that wants to pay cash for the home instead of waiting for the minority who has the fifty year mortgage financing that is offering you 4% less? Nope, that would be discrimination and you no longer have control over property which technically belongs to the people.
See where this is leading?
Once the bankers and government elect to divert full control of the residential real estate market, or at least a majority of it, to Federal control, all private property rights cease in the United States. Want to grow a garden? Apply at the appropriate Federal agencies like the Department of Agriculture. Want to add a pool or a patio? Better hope the EPA carbon impact study doesn’t prevent that from happening. The U.S. will not only have legal physical control of your property outside of the home, but the inside where smart electrical grid systems will become mandatory, ten ounce water conserving slow flush toilets, twenty second showers, and those stupid General Electric Chi-Com manufactured mercury loaded curly bulbs being the only ones permitted. You will comply or the government will penalize you for abusing their home and regulations.
The final straw will expand control into the areas of landlord and property management which shall be regulated via the government buying up those property’s loans and lastly small scale commercial real estate enterprises as the community banking system will implode without direct government intervention and soon. In the end this probably leaves less than twenty percent of all domestic real estate concerns either invested in or owned outright by private entities. With the preservation of the banking system, pension funds invested in REITs, plus the potential “Municide” or collapse of the municipal bond system (as I’ve been warning about since 2008) as a result of the housing collapse, there is little doubt in my mind that this devious yet effective plan to usurp private property rights will be sold as the only solution to the banking and housing crisis without allowing the entire economy to fail and reset. This new initiative will be reinforced with a bailout of the municipal bond system and states which are teetering on default so as to sell support for the program proposed and both political parties will be involved in the process to give it that “bi-partisan” appearance. Knowing the average American’s desire to obtain and keep “things” including their future retirement or home be it ten months or ten years out, look for the political and financial elites to act in a Machiavellian manner which leaves those freedoms God gave us and our Founding Fathers codified as a distant memory to those of us pining for the good old days.
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COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary
EDITOR’S NOTE: The Great Depression showed us that housing prices could drop 25.9%. The Great “recession” has now passed that drop and so far, has fallen 26%. There IS a difference however. In the run up to the Great Depression loose capital combined with other factors sent asset prices upward, but if you look at Schiller and Case Schiller Analysis you see four differences graphically.
The first difference is that in the time leading up to the Great Depression real banks were lending real money and therefore they had the constraint of risk on their own capital. Liars loans didn’t exist. It always was up to the bank’s underwriters to confirm every fact or representation made by or on behalf of the borrower, who incidentally didn’t use mortgage brokers because mortgage brokers, for the most part, didn’t exist. In the time leading up to the Great Recession, there were no real banks taking real risks. Whoever was named as payee on the note never handled the money much less funded it. Whoever was named as lender on the mortgage or deed of trust suffered the same impairment. Mortgage brokers were sent out in virtual armies with minimal training other than scripted sales pitches.
- Thus without any risk of loss on the loans and the business model being that the “loan originator” would merely present itself as the lender in exchange for a fee, and there being no underwriting process for which anyone could point their finger at and make a claim the object changed from making good loans that would enhance the income and balance sheet of the party representing itself at closing as the lender, to a different business model: get all the people you can regardless of qualifications to sign loan papers.
- In Florida these armies of “Loan counselors” or mortgage brokers included 10,000 convicted felons — so it was obvious that Wall Street wanted. The lender identified by the mortgage broker was usually not the lender identified on the closing papers and the lender on the closing papers was not the lender who advanced the money to fund the loan.
The second difference is that the run up didn’t get much out of standard territory in relation to median income adjusted for inflation. It peaked for sure and back then it was considered an extraordinary peak, but it didn’t come close to the run-up in prices preceding the Great Recession.
The third difference is that there was no specific correlation between housing prices and target markets for Wall Street backed mortgages. In fact, there were no Wall Street backed mortgages. So the decline was felt throughout the country, some parts more than others. The types of mortgages available were limited to what you could count on one hand in the time preceding the Great Depression. The number of mortgage “flavors” preceding he Great recession burgeoned to over 400 different kinds of mortgages — a number that baffled Alan Greenspan along with mortgage brokers, borrowers and those who assisted borrowers at closing. The same stack of papers were thrown at the borrower at closing — but only in size and form — the content of those papers was very different from borrower to borrower.
And the fourth difference is that rampant falsely inflated appraisals were absent in the Great Depression but the cornerstone of the Great Recession.
So the takeaway idea in this article is that the whole securitization scheme was a scam that artificially raised the APPARENT housing prices in entire geographical areas that had been targeted by Wall Street. Thus the “decline” in prices is merely a correction to come back in line with median income which has been stagnating for 30+ years. And THAT is why I say that principal reduction is unnecessary. It is a PRINCIPAL CORRECTION back to reality and away from the fraudulent claims at closing and all the way up the securitization chain.
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As the economy revs back to life, with signs of hiring on the horizon, the housing market is being left behind like Macaulay Culkin in “Home Alone.”
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AP
Macaulay Culkin
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In the past few years, we’ve all been careful to choose our words carefully, not calling it a recession until it fit the technical definition and avoiding any inappropriate use of the “D” word — Depression.
Things were bad but the broader economy never reached Depression territory. The housing market, on the other hand, just crossed that threshold.
Home values have fallen 26 percent since their peak in June 2006, worse than the 25.9-percent decline seen during the Depression years between 1928 and 1933, Zillow reported.
November marked the 53rd consecutive month (4 ½ years) that home values have fallen.
What’s worse, it’s not over yet: Home values are expected to continue to slide as inventories pile up, and likely won’t recover until the job market improves.
And while the president is physically protected in an emergency, whisked to a bunker at an undisclosed location, the actual White House is not: The value of 1600 Pennsylvania Avenue has dropped by $80 million, or nearly 25 percent since the peak of the housing boom. It’s current value is $251.6 million, according to Zillow, down from $331.5 million.
Oh-h say can you see … by the dawn’s ear-ly light …
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http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/01/09/BU4N1H5FOR.DTL
On Monday, more than two months behind schedule, the California Housing Finance Agency will begin taking applications for a federally funded program that will give some unemployed homeowners up to $18,000 each over six months to pay their mortgage.
To qualify, homeowners must meet income and other restrictions and their loan servicer must participate in the program. As of Friday, only three servicers had signed up, but CalHFA expects to have up to 10 by the end of this week.
The program is the first of four in California that will be financed by the Hardest Hit Fund, a $7.6 billion pot of money the Treasury Department is providing to 18 states with high unemployment rates or big drops in housing prices.
The Obama administration announced the fund in February but kept adding states and money to it throughout last year. California was one of the first states to qualify and stands to receive almost $2 billion, but has not yet launched a program.
The other three CalHFA programs, which go under the umbrella name Keep Your Home California, will:
— Give homeowners who have fallen behind on their mortgage payments up to $15,000 to reinstate them.
— Reduce principal balances by up to $50,000 for borrowers who owe more than their homes are worth.
— Provide up to $5,000 in transition assistance to homeowners who give up their homes in connection with a short sale or deed-in-lieu of foreclosure.
A homeowner might qualify for more than one program, but can’t get more than $50,000 in total assistance.
CalHFA had promised to start taking applications for all four programs Nov. 1, but each one requires loan servicers to participate and their assistance has not been easy to get, even though lenders stand to benefit.
That’s partly because each state getting hardest-hit funds can design its own program and that has created administrative burdens for national servicers.
“They have asked us to have a unified process,” says Evan Gerberding, a spokeswoman for CalHFA.
California’s unemployment assistance program, which begins Monday, has many requirements.
— You must be receiving unemployment benefits, but you can not be within 90 days of exhausting them.
— Your income must be 120 percent or less of the median income for a family of four in your county. In San Francisco, your income must be $119,300 or less. For other counties, see sfg.ly/g58tX0.
— Your loan must have originated on or before Jan. 1, 2009, and the balance cannot exceed $729,750.
— You must be delinquent or at risk of becoming delinquent, but you can’t be in foreclosure or more than three months past due.
— You must live in the home or condo, and you cannot own any other real estate.
— You will not qualify if you refinanced your mortgage for more than the outstanding balance (except to pay for mortgage-related fees). If you refinanced just to get a lower rate, you will not be disqualified.
— If you have a stand-alone second mortgage, such as a home equity loan or line of credit, you will not qualify.
Homeowners can get up to $3,000 per month or 100 percent of their mortgage payment, whichever is less, for up to six months.
The assistance will be structured as a non-recourse, non-interest-bearing lien against the property that is forgiven after three years. If you default on your payments, sell or refinance within three years, you might have to repay it.
To apply, contact your servicer or call a toll-free number that CalHFA will post on its website by Monday. If you call the number, a housing counselor will help determine if you are eligible and if so, work with your servicer. For more information, see keepyourhomecalifornia.org.
As of Friday, only three servicers – Chase, CalVet and CalHFA itself – had signed up for the unemployment assistance program.
Representatives for Chase, Wells Fargo and CitiMortgage say they will participate in California’s unemployment assistance and mortgage reinstatement programs but have no immediate plans to sign up for the other two.
A spokesman for Bank of America would not say which if any of the California programs BofA will sign up for. In a statement, BofA said it supports the Hardest Hit Fund concept but it will “focus our collaborative efforts on implementing consistent programs nationally.”
Gerberding says CalHFA hopes to launch the other programs in mid to late February.
Getting lenders into the principal reduction plan could be a challenge because they must match any reductions the program provides dollar for dollar.
“Where principal reduction is appropriate, we are focusing on the HAMP principal reduction alternative,” Wells Fargo spokesman Tom Goyda says, referring to a new option under the federal Home Affordable Modification Program. “That allows us to do principal reductions in all 50 states.”
Under that program, Wells is only reducing principal on loans it owns, not those it services for others, including Fannie Mae and Freddie Mac.
Fannie and Freddie have not allowed principal reductions on loans they own or back – and these account for the majority of home loans. (They have allowed principal to be reduced for the purposes of calculating a modified mortgage payment, but this principal is not forgiven.)
Whether Fannie and Freddie can permanently reduce principal under state hardest hit programs “is under review,” says a spokeswoman for the Federal Housing Finance Agency, which oversees Fannie and Freddie.
CalHFA has allocated $875 million of its hardest hit funds for unemployment assistance, $790 million for principal reduction, $129 million for mortgage reinstatement and $32 million for transition assistance.
If one program does not use all of its funding, “then we will spread it among the others,” Gerberding says. She estimates that funds could be available for up to three years.
Hardest hit funds are coming out of the $50 billion set aside for foreclosure prevention under the Troubled Assets Relief Program. Although funding for new TARP programs ended in October, “existing programs already allocated under TARP will continue to run,” says Treasury Department spokeswoman Andrea Risotto.
Risotto says that 12 states that have received hardest hit funds are testing or operating programs. By March, she says, all 18 states, plus the District of Columbia, will be operational.
For more information on the Hardest Hit Fund, see finan cialstability.gov/roadtostabil ity/hardesthitfund.html.
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Mortgage Asistance 877-227-4341 