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1 Oct

These pretender lenders are not banks and are thereby subject to usury law when you add all the undisclosed profits and appraisal fraud is easy to see that the interest exceeds 10% and this could be offset as against the loan.The trustor also may offset against the amount claimed by the beneficiary any amount due the trustor from the beneficiary. [See Hauger v. Gates (1954) 42 Cal.2d 752, 755; 249 P.2d 609; Richmond v. Lattin (1883) 64 Cal. 273; 30 P. 818; Goodwin v. Alston (1955) 130 Cal.App.2d 664, 669; 280 P.2d 34; Cohen v. Bonnell (1936) 14 Cal.App.2d 38; 57 P.2d 1326; Zarillo v. Le Mesnacer (1921) 51 Cal.App. 442; 1196 P.902 (damages for conversion offset against debt secured by chattel mortgage); Williams v. Pratt (1909) 10 Cal.App. 625, 632; 103 P. 151.]  In Goodwin, supra, the mortgagor established that the mortgagee charged usurious interest, and the penalty of the trebled interest payments along with other amounts were setoff against the mortgage debt. As a result, the debt was effectively satisfied, the mortgage was thereby extinguished and no foreclosure was permitted, and the mortgagee was held liable to the mortgagor for damages.  (See 130 Cal.App.2d at 668-69.)

The Supreme Court made clear in Hauaer, supra, that the trustor, in the context of the nonjudicial foreclosure of a deed of trust, could use the right of setoff. [See 42 Cal.2d at 755.] Normally, setoff is employed defensively through an affirmative defense or cross-complaint (or formerly counterclaim) in response to an action for money. The court in Hauaer, however, saw no distinction between the right of setoff held by a trustor defending a foreclosure action or by a trustor affirmatively attacking a nonjudicial foreclosure proceeding. (Id. at 755-56.) Accordingly, the Supreme Court held that the trustor, as plaintiff, could establish the impropriety of a foreclosure by showing that the trustor was not in default on his obligation since the obligation was offset by an obligation which the beneficiary owed to him. (Id. at 753, 755.) The court further held that the trustor did not have to bring an independent action to establish the setoff. (Id. at 755.) Moreover, the court declared that unliquidated as well as liquidated amounts could be setoff; thus, the court allowed the trustor to setoff an unliquidated claim for damages for breach of contract.

Hauaer and the other cases cited above are based on former Code of Civ. Proc. § 440 which has been superseded by Code of Civ. Proc. § 431.70. The rule of these cases should not be altered because the new section appears broader than the old. Furthermore, the Legislative Committee Comment to section 431.70 not only states that the new section continues the substantive effect of section 440 but also approvingly cites Hauaer.

The right of setoff has substantial significance in contesting the validity of any foreclosure since the trustor may establish that no default occurred or, indeed, no indebtedness exists because of an offsetting amount owed by the beneficiary to the trustor. As discussed above, this offset may be a liquidated or an unliquidated claim. In addition, the claim which the trustor may wish to offset may be barred by the statute of limitations at the time of the foreclosure, but as long as the trustor’s claim and the beneficiary’s claim coexisted at any time when neither claim was barred, the claims are deemed to have been offset. [See Code of Civ. Proc. § 431.70.] The theory is that the competing claims which coexisted when both were enforceable were offset to the extent they equaled each other without the need to bring an action on the claims. Therefore, since the offsetting claim is deemed satisfied to the extent it equaled the other claim, there was no

existing claim against which the statute of limitation operates. See Jones v. Mortimer (1946) 28 Cal.2d 627, 632-33; 170 P.2d 893; Singer Co. v. County of Kings (1975) 46 Cal.App.3d 852, 869; 121 Cal.Rptr. 398; see also Hauger v. Gates, supra, 42 Cal.2d 752, 755.]

The right of setoff not only gives the trustor the ability to setoff liquidated and unliquidated claims for money paid or for damages, but also permits setoffs for statutory penalties to which the trustor may be entitled because of the beneficiary’s violation of the law. In Goodwin v. Alston, supra, 130 Cal.App.2d 664 the debtor in a foreclosure action offset his obligation against the treble damages awarded to him for the creditor’s usury violations. Similarly, the penalty for violating the federal Truth in Lending Act — twice the amount of the finance charge but not less than $100 or more than $1,000 [15 U.S.C. § 1640(a)(2)(A)(i)] — may be offset against the obligation owed the creditor.-‘ [See 15 U.S.C. § 1640(h); Reliable Credit Service, Inc. v. Bernard (La.App. 1976) 339 So.2d 952, 954, cert, den. 341 So.2d 1129, cert, den. 342 So.2d 215; Martin v. Body (Tex.Civ.App. 1976) 533 S.W.2d 461, 467-68].

Although Truth in Lending penalties may be offset against the creditor’s claim, the debtor may not unilaterally deduct the penalty; rather, the offset must be raised in a judicial proceeding, and the offset’s validity must be adjudicated.  [15 U.S.C. § 1640(h); see e.g., Pacific Concrete Fed. Credit Union v. Kauanoe (Haw. 1980) 614 P.2d 936, 942-43; Lincoln First Bank of Rochester v. Rupert (App.Div. 1977) 400 N.Y.S. 618, 621.]

Although no cases have authorized the trustor’s offset of punitive damages against the obligation owed, no reason appears to prevent the offset of punitive damages. Normally, if punitive damages were appropriate, sufficient fraud, oppression, or other misconduct would be established to vitiate the entire transaction. But even if the transaction were rescinded, the injured trustor likely would be required to return any consideration given by the offending beneficiary. The trustor almost always will have spent the money, usually to satisfy another creditor or to purchase goods or services which cannot be returned for near full value. A punitive damage offset may reduce or eliminate the trustor’s obligation to restore consideration paid in a fraudulent, oppressive, or similarly infirm transaction.

SB 94 and its interferance with the practice

5 Sep

CA SB 94 on Lawyers & Loan Modifications Passes Assembly… 62-10

The California Assembly has passed Senate Bill 94, a bill that seeks to protect homeowners from loan modification scammers, but could end up having the unintended consequence of eliminating a homeowner’s ability to retain an attorney to help them save their home from foreclosure.

The bill, which has an “urgency clause” attached to it, now must pass the State Senate, and if passed, could be signed by the Governor on October 11th, and go into effect immediately thereafter.

SB 94’s author is California State Senator Ron Calderon, the Chair of the Senate Banking Committee, which shouldn’t come as much of a surprise to anyone familiar with the bigger picture. Sen. Calderon, while acknowledging that fee-for-service providers can provide valuable services to homeowners at risk of foreclosure, authored SB 94 to ensure that providers of these services are not compensated until the contracted services have been performed.

SB 94 prevents companies, individuals… and even attorneys… from receiving fees or any other form of compensation until after the contracted services have been rendered. The bill will now go to the Democratic controlled Senate where it is expected to pass.

Supporters of the bill say that the state is literally teeming with con artists who take advantage of homeowners desperate to save their homes from foreclosure by charging hefty fees up front and then failing to deliver anything of value in return. They say that by making it illegal to charge up front fees, they will be protecting consumers from being scammed.

While there’s no question that there have been some unscrupulous people that have taken advantage of homeowners in distress, the number of these scammers is unclear. Now that we’ve learned that lenders and servicers have only modified an average of 9% of qualified mortgages under the Obama plan, it’s hard to tell which companies were scamming and which were made to look like scams by the servicers and lenders who failed to live up to their agreement with the federal government.

In fact, ever since it’s come to light that mortgage servicers have been sued hundreds of times, that they continue to violate the HAMP provisions, that they foreclose when they’re not supposed to, charge up front fees for modifications, require homeowners to sign waivers, and so much more, who can be sure who the scammers really are. Bank of America, for example, got the worst grade of any bank on the President’s report card listing, modifying only 4% of the eligible mortgages since the plan began. We’ve given B of A something like $200 billion and they still claim that they’re having a hard time answering the phones over there, so who’s scamming who?

To make matters worse, and in the spirit of Y2K, the media has fanned the flames of irrationality with stories of people losing their homes as a result of someone failing to get their loan modified. The stories go something like this:

We gave them 1,000. They told us to stop making our mortgage payment. They promised us a principal reduction. We didn’t hear from them for months. And then we lost our house.

I am so sure. Can that even happen? I own a house or two. Walk me through how that happened again, because I absolutely guarantee you… no way could those things happen to me and I end up losing my house over it. Not a chance in the world. I’m not saying I couldn’t lose a house, but it sure as heck would take a damn sight more than that to make it happen.

Depending on how you read the language in the bill, it may prevent licensed California attorneys from requiring a retainer in advance of services being rendered, and this could essentially eliminate a homeowner’s ability to hire a lawyer to help save their home.

Supporters, on the other hand, respond that homeowners will still be able to hire attorneys, but that the attorneys will now have to wait until after services have been rendered before being paid for their services. They say that attorneys, just like real estate agents and mortgage brokers, will now only be able to receive compensation after services have been rendered.

But, assuming they’re talking about at the end of the transaction, there are key differences. Real estate agents and mortgage brokers are paid OUT OF ESCROW at the end of a transaction. They don’t send clients a bill for their services after the property is sold.

Homeowners at risk of foreclosure are having trouble paying their bills and for the most part, their credit ratings have suffered as a result. If an attorney were to represent a homeowner seeking a loan modification, and then bill for his or her services after the loan was modified, the attorney would be nothing more than an unsecured creditor of a homeowner who’s only marginally credit worthy at best. If the homeowner didn’t pay the bill, the attorney would have no recourse other than to sue the homeowner in Small Claims Court where they would likely receive small payments over time if lucky.

Extending unsecured credit to homeowners that are already struggling to pay their bills, and then having to sue them in order to collect simply isn’t a business model that attorneys, or anyone else for that matter, are likely to embrace. In fact, the more than 50 California attorneys involved in loan modifications that I contacted to ask about this issue all confirmed that they would not represent homeowners on that basis.

One attorney, who asked not to be identified, said: “Getting a lender or servicer to agree to a loan modification takes months, sometimes six or nine months. If I worked on behalf of homeowners for six or nine months and then didn’t get paid by a number of them, it wouldn’t be very long before I’d have to close my doors. No lawyer is going to do that kind of work without any security and anyone who thinks they will, simply isn’t familiar with what’s involved.”

“I don’t think there’s any question that SB 94 will make it almost impossible for a homeowner to obtain legal representation related to loan modifications,” explained another attorney who also asked not to be identified. ”The banks have fought lawyers helping clients through the loan modification process every step of the way, so I’m not surprised they’ve pushed for this legislation to pass.”

Proponents of the legislation recite the all too familiar mantra about there being so many scammers out there that the state has no choice but to move to shut down any one offering to help homeowners secure loan modifications that charges a fee for the services. They point out that consumers can just call their banks directly, or that there are nonprofit organizations throughout the state that can help homeowners with loan modifications.

While the latter is certainly true, it’s only further evidence that there exists a group of people in positions of influence that are unfamiliar , or at the very least not adequately familiar with obtaining a loan modification through a nonprofit organization, and they’ve certainly never tried calling a bank directly.

The fact that there are nonprofit housing counselors available, and the degree to which they may or may not be able to assist a given homeowner, is irrelevant. Homeowners are well aware of the nonprofit options available. They are also aware that they can call their banks directly. From the President of the United States and and U.S. Attorney General to the community newspapers found in every small town in America, homeowners have heard the fairy tales about about these options, and they’ve tried them… over and over again, often times for many months. When they didn’t get the desired results, they hired a firm to help them.

Yet, even the State Bar of California is supporting SB 94, and even AB 764, a California Assembly variation on the theme, and one even more draconian because of its requirement that attorneys only be allowed to bill a client after a successful loan modification has been obtained. That means that an attorney would have to guarantee a homeowner that he or she would obtain a modification agreement from a lender or servicer or not get paid for trying. Absurd on so many levels. Frankly, if AB 764 passes, would the last one out of California please turn off the lights and bring the flag.

As of late July, the California State Bar said it was investigating 391 complaints against 141 attorneys, as opposed to nine investigations related to loan modifications in 2008. The Bar hasn’t read anywhere all of the complaints its received, but you don’t have to be a statistician to figure out that there’s more to the complaints that meets the eye. So far the State Bar has taken action against three attorneys and the Attorney General another four… so, let’s see… carry the 3… that’s 7 lawyers. Two or three more and they could have a softball team.

At the federal level they’re still reporting the same numbers they were last spring. Closed 11… sent 71 letters… blah, blah, blah… we’ve got a country of 300 million and at least 5 million are in trouble on their mortgage. The simple fact is, they’re going to have to come up with some serious numbers before I’m going to be scared of bumping into a scammer on every corner.

Looking Ahead…

California’s ALT-A and Option ARM mortgages are just beginning to re-set, causing payments to rise, and with almost half of the mortgages in California already underwater, these homeowners will be unable to refinance and foreclosures will increase as a result. Prime jumbo foreclosure rates are already up a mind blowing 634% as compared with January 2008 levels, according to LPS Applied Analytics.

Clearly, if SB 94 ends up reducing the number of legitimate firms available for homeowners to turn to, everyone involved in its passage is going to be retiring. While many sub-prime borrowers have suffered silently through this horror show of a housing crisis, the ALT-A and Option ARM borrowers are highly unlikely to slip quietly into the night.

There are a couple of things about the latest version of SB 94 that I found interesting:

1. It says that a lawyer can’t collect a fee or any other compensation before serivces have been delivered, but it doesn’t make clear whether attorneys can ask the client to deposit funds in the law firm’s trust account and then bill against thsoe funds as amounts are earned. Funds deposited in a law firm trust account remain the client’s funds, so they’re not a lawyer’s “fees or other compensation”. Those funds are there so that when the fees have been earned, the lawyer doesn’t have to hope his or her bill gets paid. Of course, it also says that an attorney can’t hold any security interest, but money in a trust account a client’s money, the attorney has no lien against it. All of this is a matter of interpretation, of course, so who knows.

2. While there used to be language in both the real estate and lawyer sections that prohibited breaking up services related to a loan modification, in the latest version all of the language related to breaking up services as applied to attorneys has been eliminated. It still applies to real estate licensed firms, but not to attorneys. This may be a good thing, as at least a lawyer could complete sections of the work involved as opposed to having to wait until the very end, which the way the banks have been handling things, could be nine months away.

3. The bill says nothing about the amounts that may be charged for services in connection with a loan modification. So, in the case of an attorney, that would seem to mean that… well, you can put one, two and three together from there.

4. Lawyers are not included in definition of foreclosure consultant. And there is a requirement that new language be inserted in contracts, along the lines of “You don’t have to pay anyone to get a loan modification… blah, blah, blah.” Like that will be news to any homeowner in America. I’ve spoken with hundreds and never ran across one who didn’t try it themselves before calling a lawyer. I realize the Attorney General doesn’t seem to know that, but look… he’s been busy.


Will SB 94 actually stop con artists from taking advantage of homeowners in distress? Or will it end up only stopping reputable lawyers from helping homeowners, while foreclosures increase and our economy continues its deflationary free fall? Will the California State Bar ever finishing reading the complaints being received, and if they ever do, will they understand what they’ve read. Or is our destiny that the masses won’t understand what’s happening around them until it sucks them under as well.

I surely hope not. But for now, I’m just hoping people can still a hire an attorney next week to help save their homes, because if they can’t… the Bar is going to get a lot more letters from unhappy homeowners.

Homecomings TILA complaint GMAC

27 Jun


Lender class action

27 Jun


Option One Complaint Pick a payment lawsuit

27 Jun


Exponential Usury On Wall Street

24 May

By Edward W. Miller, MD

Thou hast taken usury and increase, and thou hast greedily gained of thy neighbors by extortion, and thou hast forgotten me saith the Lord.” – Ezekiel 22:12 (King James Version)

And Jesus entered the temple of God and drove out all who sold and bought in the temple and turned the tables of the money changers and the seats of those who sold pigeons. He said to them, ‘It is written, ‘My house show be called a house of prayer’; but you make it a den of robbers.'” -Matthew 21: 12

AS for our economy, the ongoing failure of millions of “sub-prime” mortgages with 9 million threatened foreclosures across the country, the increasing reported lack of “affordable housing”, along with a consumer debt of $2.52 trillion, and a major economic recession stretching across the industrial world comes as no surprise to those who have watched Congress, again and again surrender to Wall Street lobbying over the past half century. The first major slide downhill took place on June 23rd, 1947, when a newly elected Republican Congress passed the Taft-Hartley Act over president Truman’s veto. The results of this assault on American labor appeared gradually over the years. Beginning in 1972, statistics show that wages were already falling below the costs of living for the American middle class.

The present huge pyramid of debt, both public and private was made possible by the weakening of labor’s political input plus thirty years of Congress’ relentless deregulation of our financial markets, culminating, during the Clinton Administration, in the 1999 repeal of the Glass-Steagall Act, which Act had prohibited banks from dealing in high-risk securities. In effect, Washington supposed regulators had become passive enablers to Wall Street’s financial binge drinkers.

As columnist Robert Scheer pointed out (March 12th SF Chronicle): “The Clinton-backed Gramm-Leach-Baily Act of 1999 called the “Financial Services Modernization Act,” permitted banks, stock brokers, and insurance companies to merge and was exacerbated by Bush’s appointment of rapacious corporate foxes to watch the corporate hen house.” They will take care of their own…Their action was made possible only by the federal government’s using our tax dollars to pick up the bad debt of the banks.”

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