FORECLOSURE: ITS TIME TO OCCUPY THE COURTHOUSE

CLE Credit: 1.0 Wednesday, June 6, 2012 1:40 p.m. - 2:40 p.m. Combs-Chandler Room Galt House Hotel Louisville, Kentucky

A NOTE CONCERNING THE PROGRAM MATERIALS

The materials included in this Kentucky Bar Association Continuing Legal Education handbook are intended to provide current and accurate information about the subject matter covered. No representation or warranty is made concerning the application of the legal or other principles discussed by the instructors to any specific fact situation, nor is any prediction made concerning how any particular judge or jury will interpret or apply such principles. The proper interpretation or application of the principles discussed is a matter for the considered judgment of the individual legal practitioner. The faculty and staff of this Kentucky Bar Association CLE program disclaim liability therefore. Attorneys using these materials, or information otherwise conveyed during the program, in dealing with a specific legal matter have a duty to research original and current sources of authority.

Printed by: Kanet Pol & Bridges 7107 Shona Drive Cincinnati, Ohio 45237 Kentucky Bar Association

TABLE OF CONTENTS
The Presenter .................................................................................................................... i Timeline for a Foreclosure Proceeding ............................................................................. 1 Alternatives to Foreclosure Borrowers Copy ................................................................. 3 What is HAMP? ................................................................................................................. 5 HAMP Loan Modification Application ................................................................................ 9 Foreclosure Clinic Data Sheet ........................................................................................ 13 Securitization Diagram .................................................................................................... 15 Franklin County Rules of Court Rule 18: Foreclosure Mediation Program ................. 17 Foreclosure Defense ....................................................................................................... 23

THE PRESENTER

Ben W. Carter Morris & Player 1211 Herr Lane, Suite 205 Louisville, Kentucky 40222 (502) 416-3430

BEN W. CARTER is an attorney with Morris & Player in Louisville. Prior to joining the firm, Mr. Carter worked at Legal Aid Society and helped Jefferson County build an innovative, county-wide response to its foreclosure crisis. For this work, the Kentucky Bar Association recognized him as the Outstanding Young Lawyer of 2010. After graduating from Davidson College in North Carolina in 2001 and the University of Kentucky College of Law in 2006, Mr. Carter clerked in the Franklin County Circuit Court for the Honorable Thomas Wingate. In 2007, he and his wife moved to the Republic of Palau where he served as one of two Public Defenders for the small island nation. Upon return to their native Kentucky, they moved to Louisville and Mr. Carter began defending homeowners in foreclosure for the Legal Aid Society.

ii

Timeline for a Foreclosure Proceeding

Notice of Default Default occurs as soon as you miss a payment. After default, your bank sends you a notice of default, usually waiting until a payment is at least 30 days late. Afterward, your bank sends notice that it is accelerating the debt, which means that the entire sum that you owe is now due.

Pre-Foreclosure Phase Lenders refer loans to their foreclosure attorneys at 60-90 days past due. This Is When Legal Aid Society Can Take Cases Legal Aid Society may not take a foreclosure case before the complaint is filed or after the time to file an Answer has passed.

Complaint Is Filed Your bank files a complaint in Circuit Court. The case is assigned to one of 13 divisions. You are served by the Sheriff or certified mail and have 20 days to respond to the Complaint. If you cannot be served personally, a Warning Order Attorney is appointed. A hearing may be held if you file an Answer or respond to a motion for summary judgment.

Judgment & Order of Sale If you do not respond to the complaint, your bank will seek a default judgment. If you do respond, you and/or your bank may ask the judge for summary judgment. The judge makes a final ruling, often based on the recommendation of the Master Commissioner.

Case Sent to Commissioners Office This office conducts an appraisal, sets a sale date, and gives notice of the sale.

Eviction & Cash for Keys The new owner of the property asks the court for a writ of possession. Deputy sheriffs supervise the setting-out of your things. In order to avoid this hassle and expense, the new owner may pay you $500-$1,000 to move out voluntarily and leave the house in good condition.

Foreclosure Auction A public auction (you can attend) is held at 514 W. Liberty Street. The highest bidder wins and receives the deed to the property upon payment. 1

Redemption Period If your home sells for less than 2/3 of its appraised value, you have one year to buy it back for the price paid at auction plus interest at 10%.

ALTERNATIVES TO FORECLOSURE BORROWERS COPY Leave the Home What Happens Sell your home and use the proceeds to pay off the loan. Give your bank the deed to the home.

Option Sale Deed in Lieu

Short Sale

Sell your home for less than you owe.

When it works best You owe less than the sale price of the home. You owe less than the fair market value of the home and there are no junior liens on the home. You lose your equity in the home but avoid the expenses of foreclosure. You are under water, and you have your banks permission to do this.

Option Forbearance Agreement

Loan Modification

Reverse Mortgage

Chapter 13 Bankruptcy

Chapter 7 Bankruptcy Reinstatement

Refinance

Keep the Home What Happens When it works best Your bank allows you to suspend You cannot currently afford your payments temporarily. monthly payments, but expect to be able to afford them in the future. You can no longer afford your You and your bank renegotiate monthly payments because of, for the terms of the loan, including example, increased interest rates principal, interest rate and or reduced income. duration. You get a new mortgage, with no You are sixty-two (62) or older monthly payment or with a and have some equity in your monthly payment to you, which is home. paid off when you sell the home or pass away. You file for bankruptcy protection. You have regular income and can afford monthly payments outside bankruptcy and payments within bankruptcy. You file for bankruptcy protection. Your bank agrees to reaffirm the debt outside of bankruptcy. You pay missed payments plus You can afford it. This is often a any applicable late fees, legal very expensive option. fees and foreclosure fees. You find another bank to borrow You owe less than the house is money to pay back original bank. worth, and have regular income and a good credit score.

Worst-Case Scenario: Cash for Keys If your home is sold in a foreclosure auction and the buyer wants to avoid the expenses of eviction by the Sheriff, the buyer may pay you to move out and leave the home in good condition.

WHAT IS HAMP?

HAMP is a voluntary, incentive-based plan that requires servicers to review their portfolio of loans for modification under a specific regime of changes to a loans interest-rate, amortization period, and principle balance. HAMP Handbook for Servicers: Google HAMP Handbook The HAMP Three-Step I. IS SERVICER PARTICIPATING? A. Eighty-five Percent of All Loans Are Being Serviced by Participating Servicers Full List of Participating Servicers at www.makinghomeaffordable.gov Mandatory for All Fannie Mae and Freddie Mac Insured Loans, Even If Servicer Not Participating For Non-GSE Loans, Servicers Choose Whether to Participate or Not Similar HAMP Programs for VA and FHA Loans Servicer Incentives 1. 2. II. $1,000 for each completed modification. $1,000/year for three years for sustained loan modification.

B. C.

D. E. F.

IS HOMEOWNER ELIGIBLE? A. B. C. D. E. Has to Be a Homeowner (No Investment Property, No Rental Property) One to Four Units $729,450 Loan Cap (for One-Unit Homes) Not Previously Modified under HAMP Default or Imminent Risk of Default 1. 2. Default caused by hardship. Default is imminent due to hardship: loss of income, resetting rate, divorce, death, low cash reserves.

F.

Current Payment of 31 Percent or More (PITIA)

III.

DOES THE HOMEOWNER QUALIFY? A. HAMP Application 1. 2. 3. B. Hardship affidavit. Verified income. 4506-T: Request for Transcript of Tax Return.

Net Present Value (NPV) Test: Is Our Investor Going to Lose More Money Foreclosing or Modifying This Loan under HAMP? 1. How much money theyre going to lose in foreclosure. x 2. Value of existing loan x probability of default

How much money theyre going to lose modifying the loan. x Value of modified loan (less revenue stream) x probability of re-default

3.

Default model. x FICO score, MTM Loan-to-Value, Current delinquency, DTI

IV.

HOW TO ADVISE AND REPRESENT HOMEOWNERS A. What Homeowners Can Expect 1. 2. B. Degradation. Waterfall.

Things That Can and Probably Will Go Wrong 1. Servicers encourage current homeowners to miss payment in order to qualify. a. Equity, negligent/fraudulent misrepresentation, breach of duty of good faith and fair dealing. Default model based on current delinquency and FICO score (both impacted by servicers actions).

b.

2.

Servicers dont modify an eligible and qualifying homeowner (they do the NPV math wrong). a. NPV test is not public. i. Demand in discovery. 6

ii. ii. b.

FDIC Mod in a Box. Dodd-Frank requires disclosure of certain inputs.

Servicers who sign contracts must modify eligible and qualifying homeowners (and comply with existing laws, p. 12). Marques v. Wells Fargo Home Mortgage, Inc., 2010 WL 3212131 (S.D. Cal. Aug. 12, 2010): homeowner has right to sue for failure to comply with HAMP requirements under third-party beneficiary theory. Equity prohibits a servicer from enjoying the extreme remedy of foreclosure while it is not complying with a federal program designed to preserve home ownership

c.

d.

3.

Investor isnt participating. a. HAMP doesnt override PSA, but HAMP is the usual and customary industry standards. If investor forbids modification, servicer must request waiver. MHA Handbook, p. 11: servicers are required to use reasonable efforts to get approval and provide a list of non-participating investors and to contact each in writing at least once to encourage participation.

b.

c.

V.

SERVICER DOES WHAT ITS SUPPOSED TO DO

Pri n t F orm

Making Home Affordable Program

Request For Modification and Affidavit (RMA)

REQUEST FOR MODIFICATION AND AFFIDAVIT (RMA) page 1 Loan I.D. Number____________________________________ COMPLETE ALL THREE PAGES OF THIS FORM Servicer ____________________________________

BORROWER
Borrowers name Social Security number Home phone number with area code Cell or work number with area code Date of birth Co-borrowers name Social Security number

CO-BORROWER

Date of birth

Home phone number with area code Cell or work number with area code

I want to: The property is my: The property is:

Mailing address

Keep the Property Primary Residence Owner Occupied

Sell the Property Second Home Renter Occupied Investment Vacant

Property address (if same as mailing address, just write same) Is the property listed for sale? Yes No Have you received an offer on the property? Yes No Date of offer _________ Amount of offer $_____________________ Agents Name: ___________________________________________ Agents Phone Number: ____________________________________ For Sale by Owner? Yes No Who pays the real estate tax bill on your property? I do Lender does Paid by condo or HOA Are the taxes current? Yes No Condominium or HOA Fees Yes No $ __________________ Paid to: _________________________________________________ Have you filed for bankruptcy? Yes Has your bankruptcy been discharged? No Yes If yes: No

E-mail address Have you contacted a credit-counseling agency for help Yes No If yes, please complete the following: Counselors Name: _________________________________________ Agency Name: ____________________________________________ Counselors Phone Number: __________________________________ Counselors E-mail: ________________________________________ Who pays the hazard insurance premium for your property? I do Lender does Paid by Condo or HOA Is the policy current? Yes No Name of Insurance Co.: ______________________________________ Insurance Co. Tel #: _________________________________________

Chapter 7 Chapter 13 Filing Date:_________________________ Bankruptcy case number _________________________________

Additional Liens/Mortgages or Judgments on this property: Lien Holders Name/Servicer Balance Contact Number Loan Number

HARDSHIP AFFIDAVIT
I (We) am/are requesting review under the Making Home Affordable program. I am having difficulty making my monthly payment because of financial difficulties created by (check all that apply): My household income has been reduced. For example: unemployment, underemployment, reduced pay or hours, decline in business earnings, death, disability or divorce of a borrower or co-borrower. My expenses have increased. For example: monthly mortgage payment reset, high medical or health care costs, uninsured losses, increased utilities or property taxes. Other: Explanation (continue on back of page 3 if necessary): __________________________________________________________________________ ______________________________________________________________________________________________________________________ My monthly debt payments are excessive and I am overextended with my creditors. Debt includes credit cards, home equity or other debt.

My cash reserves, including all liquid assets, are insucient to maintain my current mortgage payment and cover basic living expenses at the same time.

page 1 of 3

REQUEST FOR MODIFICATION AND AFFIDAVIT (RMA) page 2

COMPLETE ALL THREE PAGES OF THIS FORM

Number of People in Household:

INCOME/EXPENSES FOR HOUSEHOLD1

Monthly Household Income Monthly Gross Wages Overtime Child Support / Alimony / Separation2 Social Security/SSDI Other monthly income from pensions, annuities or retirement plans Tips, commissions, bonus and self-employed income Rents Received Unemployment Income Food Stamps/Welfare Other (investment income, royalties, interest, dividends etc.) Total (Gross Income) $ $ $ $ $ Monthly Household Expenses/Debt First Mortgage Payment Second Mortgage Payment Insurance Property Taxes Credit Cards / Installment Loan(s) (total minimum payment per month) Alimony, child support payments Net Rental Expenses HOA/Condo Fees/Property Maintenance Car Payments Other ________________ _____________________ $ $ $ $ $

Household Assets Checking Account(s) Checking Account(s) Savings/ Money Market CDs Stocks / Bonds $ $ $ $ $

$ $ $ $ $

$ $ $ $ $

Other Cash on Hand Other Real Estate (estimated value) Other _____________ Other _____________

$ $ $ $

Do not include the value of life insurance or retirement plans when calculating assets (401k, pension funds, annuities, IRAs, Keogh plans, etc.) Total Assets $

Total Debt/Expenses

INCOME MUST BE DOCUMENTED

1Include combined income and expenses from the borrower and co-borrower (if any). If you include income and expenses from a household

member who is not a borrower, please specify using the back of this form if necessary.
2You are not required to disclose Child Support, Alimony or Separation Maintenance income, unless you choose to have it considered by your servicer.

INFORMATION FOR GOVERNMENT MONITORING PURPOSES

The following information is requested by the federal government in order to monitor compliance with federal statutes that prohibit discrimination in housing. You are not required to furnish this information, but are encouraged to do so. The law provides that a lender or servicer may not discriminate either on the basis of this information, or on whether you choose to furnish it. If you furnish the information, please provide both ethnicity and race. For race, you may check more than one designation. If you do not furnish ethnicity, race, or sex, the lender or servicer is required to note the information on the basis of visual observation or surname if you have made this request for a loan modication in person. If you do not wish to furnish the information, please check the box below. BORROWER Ethnicity: Race: I do not wish to furnish this information Hispanic or Latino Not Hispanic or Latino American Indian or Alaska Native Asian Black or African American Native Hawaiian or Other Pacic Islander White Female Male CO-BORROWER Ethnicity: Race: I do not wish to furnish this information Hispanic or Latino Not Hispanic or Latino American Indian or Alaska Native Asian Black or African American Native Hawaiian or Other Pacic Islander White Female Male Name/Address of Interviewers Employer

Sex:

Sex:

To be completed by interviewer
This request was taken by: Face-to-face interview Mail Telephone Internet Interviewers Name (print or type) & ID Number Interviewers Signature Date

Interviewers Phone Number (include area code)

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page 2 of 3

REQUEST FOR MODIFICATION AND AFFIDAVIT (RMA) page 3

COMPLETE ALL THREE PAGES OF THIS FORM

ACKNOWLEDGEMENT AND AGREEMENT

1. That all of the information in this document is truthful and the event(s) identied on page 1 is/are the reason that I need to request a modication of the terms of my mortgage loan, short sale or deed-in-lieu of foreclosure. 2. I understand that the Servicer, the U.S. Department of the Treasury, or their agents may investigate the accuracy of my statements and may require me to provide supporting documentation. I also understand that knowingly submitting false information may violate Federal law. 3. I understand the Servicer will pull a current credit report on all borrowers obligated on the Note. 4. I understand that if I have intentionally defaulted on my existing mortgage, engaged in fraud or misrepresented any fact(s) in connection with this document, the Servicer may cancel any Agreement under Making Home Aordable and may pursue foreclosure on my home. 5. That: my property is owner-occupied; I intend to reside in this property for the next twelve months; I have not received a condemnation notice; and there has been no change in the ownership of the Property since I signed the documents for the mortgage that I want to modify. 6. I am willing to provide all requested documents and to respond to all Servicer questions in a timely manner. 7. I understand that the Servicer will use the information in this document to evaluate my eligibility for a loan modication or short sale or deed-in-lieu of foreclosure, but the Servicer is not obligated to oer me assistance based solely on the statements in this document. 8. I am willing to commit to credit counseling if it is determined that my nancial hardship is related to excessive debt. 9. I understand that the Servicer will collect and record personal information, including, but not limited to, my name, address, telephone number, social security number, credit score, income, payment history, government monitoring information, and information about account balances and activity. I understand and consent to the disclosure of my personal information and the terms of any Making Home Aordable Agreement by Servicer to (a) the U.S. Department of the Treasury, (b) Fannie Mae and Freddie Mac in connection with their responsibilities under the Homeowner Aordability and Stability Plan; (c) any investor, insurer, guarantor or servicer that owns, insures, guarantees or services my rst lien or subordinate lien (if applicable) mortgage loan(s); (d) companies that perform support services in conjunction with Making Home Aordable; and (e) any HUD-certied housing counselor.

Borrower Signature

Date

Co-Borrower Signature
HOMEOWNERS HOTLINE

Date

If you have questions about the program that your servicer cannot answer or need further counseling, you can call the Homeowners HOPE Hotline at 1-888-995-HOPE (4673). The Hotline can help with questions about

NOTICE TO BORROWERS
Be advised that by signing this document you understand that any documents and information you submit to your servicer in connection with the Making Home Aordable Program are under penalty of perjury. Any misstatement of material fact made in the completion of these documents including but not limited to misstatement regarding your occupancy in your home, hardship circumstances, and/or income, expenses, or assets will subject you to potential criminal investigation and prosecution for the following crimes: perjury, false statements, mail fraud, and wire fraud. The information contained in these documents is subject to examination and verication. Any potential misrepresentation will be referred to the appropriate law enforcement authority for investigation and prosecution. By signing this document you certify, represent and agree that: Under penalty of perjury, all documents and information I have provided to Lender in connection with the Making Home Aordable Program, including the documents and information regarding my eligibility for the program, are true and correct. If you are aware of fraud, waste, abuse, mismanagement or misrepresentations aliated with the Troubled Asset Relief Program, please contact the SIGTARP Hotline by calling 1-877-SIG-2009 (toll-free), 202-622-4559 (fax), or www.sigtarp.gov. Mail can be sent to Hotline Oce of the Special Inspector General for Troubled Asset Relief Program, 1801 L St. NW, Washington, DC 20220.

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page 3 of 3

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Foreclosure Clinic Data Sheet

Contact Information
Name Address Phone Email Case Number KHC Case Number Servicer Opposing Counsel

Selling the Home

FMV of Home Unpaid Balance Current Payment Amount Behind

Loan Mod/Forbearance
Current Payment Taxes & Insurance Interest Rate ARM Fixed Monthly Income Other Income Escrow: Income x .31 Working with Counselor HPI UL N/A

Bankruptcy
Other Debts Filed: Ch. 7 Ch 13 N/A Date Filed Date Discharged

Other
Date of Loan Loan Purpose Place Closed

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Potential Defenses
Note Unavailable Blank Endorsement Lack of Endorsement Rescission Possibility Servicing Abuses Origination Abuses

Case Acceptance
_____ LAS Eligible _____ Not LAS eligible because: Not in foreclosure Does not want to remain in home Not income eligible _____ Needs KHC entry

Received complaint long ago

Defenses outside LAS priorities

Next Steps
_____ Work with HPI/UL _____ Go to a conciliation conference _____ Sell the home _____ Explore bankruptcy _____ Hire an attorney _____ File a pro se answer _____ Get a reverse mortgage _____ Other:

Notes:

LAS Representative: Homeowner:

_____________________________

_____________________________

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SECURITIZATION DIAGRAM
ACE Securities Corp. Home Equity oan Trust, Series 2005-HE5

Consumer MORTGAGOR / CONSUMER

May 19, 2005

Related Documents Monthly Payments

Homeland Mortgage Company MORTGAGE BROKER A. Fremont Investment & Loan ORIGINATOR
PROCESSES AND FUNDS INDIVIDUAL LOANS SERVICES INDIVIDUAL LOANS; AGGREGATES COLLECTIONS; PERFORMS DUTIES UNDER TRUST'S POOLING & SERVICING AGREEMENT

Cash to Fund Mortgage Loan Wells Fargo Bank, N.A. MASTER SERVICER & CUSTODIAN

Unknown INTERIM SERVICER

SERVICES INDIVIDUAL LOANS; AGGREGATES COLLECTIONS; PERFORMS DUTIES UNDER TRUST'S POOLING & SERVICING AGREEMENT

RECEIVED A BROKER'S AND PROCESSING FEE FROM LOAN PROCEEDS

Loan Purchase Price

B. DB Structured Products, Inc. SELLER

PURCHASES LOANS FROM ORIGINATOR; FORMS POOL

ARROW LEGEND Monthly Distributions

Net Offering Proceeds

Net Offering Proceeds

Purple - Mortgage Documents Blue - Securities Certificates Orange - Investor Funds Green - Borrower Funds

Deutsche Bank Securities Inc. UNDERWRITERS Certificates

SELLS CERTIFICATES TO INVESTORS; COLLECTS OFFERING PROCEEDS

15
C. Ace Securities Corp. DEPOSITOR
CREATES ISSUING ENTITY CUTOFF DATE: 8/1/2005

The Murrayhill Company

CREDIT RISK MANAGER

PROVIDES DELINQUENCY, DEFAULT AND PREPAYMENT REPORTS & RECOMMENDATIONS TO THE DEPOSITOR

Certificates

Related Documents Certificates Offering Proceeds

Unknown SWAP COUNTERPARTY TRUST FUND / ISSUING ENTITY

HOLDS POOL OF LOANS; ISSUES CERTIFICATES

D. ACE Securities Corp. Home Equity Loan Trust, Series 2005-HE5

Wells Fargo Bank, N.A. SECURITIES ADMINISTRATOR

PAYING AGENT FOR CERTIFICATEHOLDERS

Cede & Co. (DTC) MORTGAGEE / CERTIFICATEHOLDERS

PURCHASE MORTGAGE BACKED SECURITIES AS DEFINED IN CERTIFICATES

See SWAP AGREEMENT

Return On Investment HSBC Bank USA, National Association TRUSTEE

REMITS COMPLAINTS, CLAIMS AND NOTICES TO SERVICER REGARDING MORTGAGED PROPERTY

Truth In Lending Audit & Recovery Services, LLC

Copyright 2009

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COMMONWEALTH OF KENTUCKY 48TH JUDICIAL CIRCUIT FRANKLIN COUNTY RULES OF COURT

RULE 18: FORECLOSURE MEDIATION PROGRAM 18.01 Definitions. As used in this Rule 18: (a) (b) Program means the Franklin County Foreclosure Diversion Program. Mediator means the person appointed as the Foreclosure Mediator for the Program. Qualifying Foreclosure means an action seeking as a remedy foreclosure on owner-occupied residential property, or upon property that was owner-occupied following its purchase or construction by a Defendant. Court means the Franklin Circuit Court.

(c)

(d)

18.02 Appointment of Mediator. A regularly-practicing member of The Bar of the Court shall be appointed by the Court Judges as the Mediator for the Program. 18.03 General Duties of Mediator. The Mediator shall conduct the Program and assist Plaintiffs and Defendants participating in the program. The Mediator shall conduct meetings between the parties, including mediation, and issue reports and recommendations to the Court. 18.04 Automatic Stay. All proceedings in a Qualifying Foreclosure action shall be stayed upon commencement of the action. No answer or motion shall be required of any defendant subject to the automatic stay until the stay is dissolved as to that defendant or the Court otherwise orders. (a) As to each Defendant the automatic stay shall terminate without further order of the Court upon the earlier of: (1) That Defendants failure to contact the Mediator within 20 days of service of process upon that defendant and that Defendants failure to elect to participate in the Program; The filing and service by the Mediator of notice that after electing to participate in the Program that Defendant has not participated in the Program; The filing and service by the Mediator of notice that mediation of the claims against that Defendant has concluded.

(2)

(3)

(b)

The automatic stay may be terminated as to any Defendant by order of the Court upon motion by Plaintiffs counsel to lift the stay.

17

(c)

Upon termination of the automatic stay as to any Defendant, that Defendant shall have 20 days to answer, move or take any other action required or permitted under the Rules of Civil Procedure. Notwithstanding the termination of the automatic stay under this Rule 18, any Judge of the Court may order any foreclosure case to mediation.

(d)

18.05 Plaintiffs Duties Upon Filing Of The Complaint. Upon commencement of a Qualifying Foreclosure Action the Plaintiff: (a) Shall file with the Clerk of the Court and cause to be served with each Qualifying Foreclosure Complaint a Notice conspicuously printed on colored paper containing the following: (1) The Mediators contact information. The contact information may be obtained by the Plaintiff from the Clerk of the Court. A statement that within 20 days of service of process each Defendant may contact the Mediator by telephone, e-mail or inperson to request a mandatory Status Conference. A statement that a Defendants failure to contact the Mediator within 20 days of service of process will result in dissolution of the automatic stay as to that Defendant without further order of the Court.

(2)

(3)

(b)

Shall provide to the clerk and cause to be served with each Qualifying Foreclosure Complaint the following forms: (1) A Request for Modification Affidavit (RMA) in the form illustrated at Appendix FM-1 to these rules; Dodd-Frank Certificate; and 4506T-EZ.

(2) (3) (c)

Shall serve the Mediator with a copy of the Qualifying Foreclosure Complaint.

18.06 Information To Be Provided To Defendants. Upon contact by a Defendant the Mediator shall provide the Defendant with information regarding the Program, including fees, and determine whether the Defendant elects to participate in the Program. 18.07 Notice of Election. If a Defendant elects to participate in the Program the Mediator shall file a Notice of Election with the Court identifying the electing Defendant and provide copies of the Notice to the Plaintiff and all Defendants named in the Qualifying Foreclosure Complaint. Upon filing of a Notice of Election in a Qualifying Foreclosure Proceeding, all papers required to be served shall also be served on the Mediator until further Order of the Court.

18

18.08 Status Conference. The Mediator shall schedule a Status Conference once the Defendants alleged in the Complaint to be liable to the Plaintiff on the debt giving rise to the foreclosure have contacted the Mediator, or the Mediator otherwise determines it is appropriate to proceed. (a) The Plaintiff and all Defendants electing to participate in the Program shall be required to appear at the Status Conference to explore alternatives to foreclosure. The Status Conference shall be conducted by the Mediator no later than 70 days after the earlier of the date service of process on all Defendants is complete, or the date the Mediator determines it is otherwise appropriate to proceed. The Status Conference shall not be scheduled earlier than 10 days after the earlier of the date service of process on all Defendants is complete, or the date the Mediator otherwise determines it is appropriate to proceed. At the Status Conference, the parties shall report to the Mediator the progress made in resolving Plaintiffs claims without foreclosure. The attorney for any party represented by counsel must appear in person at any Status Conference. The plaintiff or its attorney shall have immediate access (either in-person or telephonically) to the Plaintiff or its agent with full authority to approve or deny an alternative to foreclosure, including a loan modification, deed-in-lieu of foreclosure, short sale, or a forbearance agreement. At any Status Conference the Mediator may determine whether to order additional conferences or order other action by the parties. At the conclusion of any status conference, the Mediator shall recommend whether to lift the existing stay of the foreclosure proceedings based on parties' good faith in attempting to settle the case without a foreclosure sale.

(b)

(c) (d)

(e) (f)

18.09 Hardship Packet. The Mediator may direct any Defendant allegedly indebted to the Plaintiff to submit a hardship packet to the Plaintiff for Plaintiffs review and action. a) The Hardship Packet must be delivered to the Plaintiff, or Plaintiffs counsel if represented, by a Defendant 30 days after the Mediator directs that Defendant to submit a Hardship Packet. The Hardship Packet shall include the following: (1) A Request for Modification Affidavit (RMA) in the form shown at Appendix FM-1 to these rules and documents supporting the Defendant or Defendants reported income; A 4506T-EZ form; A Dodd-Frank Certificate. 19

(b)

(2) (3)

18.10 Plaintiffs Obligations Upon Receipt of Hardship Packet. No later than 14 days after delivery by a Defendant of a Hardship Packet the Plaintiff shall acknowledge receipt of the Hardship Packet and serve on the submitting Defendant one of the following: (a) (b) A loan modification or trial payment plan offer; or A written notice describing the additional documents required by the Plaintiff to review of the loan for modification or other alternative to foreclosure; or A written statement denying a loan modification and a detailed explanation of the reasons Defendant does not qualify for a loan modification.

(c)

18.11 Loan Modification Application. Within thirty (30) days after service by a Defendant of a completed loan modification application, the Plaintiff must serve one of the following on the submitting Defendant: (a) (b) A written offer of trial or permanent loan modification; or A written denial of the application that articulates the reasons for Plaintiffs refusal to modify the loan. The written denial must also explain why other alternatives to foreclosure, including a deed-in-lieu of foreclosure, a short sale, a repayment plan, or a forbearance agreement, are not appropriate.

18.12 Failure to Perform Mediation Agreement. A Plaintiff may request that the Mediator recommend to the Court that a stay be terminated as to any Defendant who fails to perform under any agreement reached through mediation. Upon such request, the Mediator may file a report with the Court recommending that the stay be lifted. The Plaintiff may move the Court to terminate a stay without regard to the Mediators recommendation, or the necessity of seeking such a recommendation. 18.13 Mediators Fee. The Mediators fee of $300.00 is payable at or before the Mandatory Status Conference. (a) (b) One-half of the fee ($150.00) shall be paid by the Plaintiff(s). One half of the fee ($150.00) shall be paid by those defendants who are alleged in the Complaint to be liable for the debt giving rise to the foreclosure proceeding. No additional Mediator fees will be assessed absent good cause (e.g. failure of a party to appear at a status conference or to have the required authority.) Plaintiff may not charge the Defendants or the Defendants account the $150.00 fee payable by the Plaintiff.

(c)

(d)

20

(e)

For good cause, the Court may adjust or reallocate the Mediators $300.00 fee based on the time and expense incurred in the mediation, the failure a party to participate in good faith, a Defendants inability to pay the fee, or other equitable cause.

18.14 Modification or Waiver of Local Rule 18. This local rule governing the Program may be waived or modified in a pending action only by Order of the Court entered following hearing on a motion with notice to all parties and the Mediator. The Mediator may move to waive or modify the local rule governing the Program. Any party to the action or the Mediator may make a motion to modify or waive this local rule in that action. 18.15 Order of Sale. A motion for an Order of Sale must be accompanied by the moving partys certification that: (a) (b) The moving party complied with the requirements of Local Rule 18; and The Defendant(s) alleged in the Complaint to be liable for the debt giving rise to the foreclosure proceeding elected not to participate in the Program or the mediation was unsuccessful.

21

22

FORECLOSURE DEFENSE OUTLINE Ben W. Carter

I.

INTRODUCTION A. How We Got Here 1. 2. Subprime mortgage lending. Opposing counsel. In re Taylor, 407 B.R. 618 (Bankr. E.D. Pa. 2009): gives excellent background as to how opposing counsel interact with their client through computer program; the role of Lender Processing Systems (sanctions reversed by 2010 WL 624909 (E.D.Pa. Feb 18, 2010), and affd in part, reversed in part by 655 F.3d 274 (3rd Cir. 2011)). B. C. The Stakes What Every Lawyer (and Homeowner) Needs to Know about Foreclosure 1. 2. 3. D. Long process. Many can afford and should hire an attorney. Communicating with bank.

Empowering Homeowners: The Psychology and Rhetoric of Foreclosure

II.

PART ONE: DEFENDING CLIENTS FROM FORECLOSURE IN COURT A. UCC Standing 1. Real party in interest with standing to enforce the note. a. As a practical matter, the foreclosing plaintiff must be the real party in interest and have standing to pursue foreclosure. Technically, these are separate inquiries, though they often get blended in court opinions and in the heat of argument in our cases. I use the phrase real party in interest with standing to enforce the note as an allencompassing statement of what interests the Plaintiff must prove it possesses in the case. I like to focus on the requirements of standing for two reasons: 1) the standard for showing standing is higher, and 2) it can be raised at any time. Technically, a claim that a Plaintiff is not the real party in interest should be brought in a motion to dismiss prior to (or contemporaneously with) filing an answer.

23

Defendants can assert the Plaintiff lacks standing at any time after discovery is over, for example. Which route you go is a matter of personal preference and the clients situation. b. Real Party in Interest (CR 17.01): Every action shall be prosecuted in the name of the real party in interest. i. Taylor v. Hurst, 216 S.W. 95 (Ky. 1919) (citation omitted). The real party in interest, within the meaning of the Code provision, is the party who will be entitled to the benefits of the action upon a successful termination thereof; one who is actually and substantially interested in the subject-matter. ... Does he satisfy the call for the person who has the right to control and receive the fruits of the litigation? In foreclosures, this is the party entitled to be paid from the foreclosure sale. In Kentucky, at minimum, real party in interest must have a significant interest, Kentucky Center for the Arts v. Whittenberg Engineering & Construction Company, 746 S.W.2d 71, 73 (Ky. App. 1987). a) b) Question is whether KCA is RPI. Suing for breach of construction contract of KCA in downtown Louisville. Charged with supervising construction and had statutory power to take, acquire and hold property. KCA held no legal or equitable title to property, however, and had no contract with Whittenberg.

ii.

c)

d)

iii.

If a party is not the real party in interest, the party lacks standing to prosecute the action. Bank of New York v. Stuart, 2007 WL 936706 (Ohio. App. Mar. 30, 2007). See State ex. Rel. Jones v. Suster, 701 N.E.2d 1002, 1008 (Ohio 1998). However, the D must be prejudiced by a mid-suit showing of RPI for SJ to be inappropriate. Stuart. RPI claim must be by demurrer (motion to dismiss). Thompson-Starret Co. v. Masons Admrs, 201 S.W.2d 876 (Ky. 1947). If not, such claims are waived. Johnson v. Ruby Lumber Co., 278 S.W.2d

iv.

v.

24

71 (Ky. 1955) (note: standing can never be waived). c. See generally, Chris Markus, et. al., "From Main Street to Wall Street: Mortgage Loan Securitization and New Challenges Facing Foreclosure Plaintiffs in Kentucky," 36 N. Ky. L. Rev. 395. This article can be relied upon for an analysis of the real party in interest problem for servicers, banks, and trustees of securitized trusts. It CANNOT be relied on for the ways in which foreclosing Plaintiffs may prove their status as real party in interest with standing to foreclose.

2.

Standing requirements. a. Standing requires a judicially recognizable interest in subject matter. The interest may not be remote and speculative, but must be a present and substantial interest in the subject matter. City of Louisville v. Stockyards Bank & Trust Co., 843 S.W.2d 327, 328-329 (Ky. 1992) Burden is on Plaintiff to prove standing to invoke the jurisdiction of the Court. J.N.R. v. OReilly, 264 S.W.3d 587 (Ky. 2008), overruled on other grounds by J.A.S. v. Bushelman, 342 S.W.3d 850 (Ky. 2011). Court can inquire sua sponte into parties standing (as it impacts subject matter jurisdiction) at any time. Kentucky Employers Mut. Ins. v. Coleman, 236 S.W.3d 9, 15 (Ky. 2007). Plaintiff must have standing at the time the suit is filed. i. City of Louisville v. Stockyards Bank & Trust Co., 843 S.W.2d 327 (Ky. 1992). Bank of Commerce of Louisville v. Abell, 184 S.W.2d 86, 89 (Ky. 1944). In order to determine the time when a transferee becomes a holder in due course, it is necessary to look at the date when the endorsement is actually made as that is the time negotiation takes effect for that purpose. Wells Fargo v. Jordan, 2009 WL 625560 (Ohio App. Mar. 12, 2009.). Wells Fargo Bank, N.A. v. Byrd, 897 N.E.2d 722 (Ohio App. 2008); Plaintiff bank cannot get standing halfway through the case through assignment of mortgage, but dismissal with prejudice was a little much; just dismiss without prejudice. Bank of New

b.

c.

d.

ii.

iii.

iv.

25

York v. Gindele, 2010 WL 571981 (Ohio App. Feb. 19, 2010) follows Byrd. v. Citibank v. Carroll, 220 P.3d 1073, 1078 (Idaho 2009). Because [Plaintiff] was the sole owner of Carrolls account at the time it brought suit, it is entitled to recovery on the funds on that account, and therefore, has standing to sue. Questions of standing must be decided by this Court before reaching the merits of the case.

e.

Judgments entered without Plaintiff having standing are void and subject to collateral attack. Ripeness: Section 112(5) of the Kentucky Constitution states in relevant part that [t]he Circuit Court shall have original jurisdiction of all justiciable causes not vested in some other court. Questions that may never arise or are purely advisory or hypothetical do not establish a justiciable controversy. Because an unripe claim is not justiciable, the circuit court has not subject matter jurisdiction over it. It is well-established that the issue of subject matter jurisdiction can be raised at any time, even sua sponte, as it cannot be acquired by waiver, consent, or estoppel. Buckley v. Kroger Co., 2007 WL 4210675 at *3 (Ky. App. Nov. 30, 2007). Servicers standing to sue. i. Green Tree Servicing, LLC v. Sanders, 2006 WL 2033668 (Ky. App. July 21, 2006): Servicer has standing to sue if agreement between it and holder give it that authority. CWCapital Asset Management, LLC v. Chicago Properties, LLC, 610 F.3d 497 (7th Cir. 2010). Provides support to Green Trees position that servicer has standing to foreclose (but only after inquiring into the PSA terms). Judge Posner gives a good background of the legal ramifications of the servicer/trustee relationship.

f.

g.

ii.

h.

Trustees standing to sue. Trustees standing depends on whether trustee possesses certain customary powers to hold, manage, and dispose of assets for the benefit of others. Navarro Sav. Assn v. Lee, 446 U.S. 458, 464 (1980).

3.

Plaintiffs prima facie case.

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a.

Plaintiffs burden. Here is the whole point of requiring the Plaintiff to prove its case: it becomes essential to establish that the person who demands payment of a negotiable note, or to whom payment is made, is the duly qualified holder. Otherwise, the obligor is exposed to the risk of double payment, or at least to the expense of litigation incurred to prevent duplicative satisfaction of the instrument. These risks provide makers with a recognizable interest in demanding proof of the chain of title. HSBC v. Thompson, 2010 WL 3451130 at *11 (Ohio App. Sep. 3, 2010).

b.

According to 6 Hawklands Uniform Commercial Code Series 308:3 (Rev. 2009). (Also, theres the test in Geiselman v. Cramer Financial Group, Inc., 965 S.W.2d 532 (Tex. App. 1997)). i. Establish the effectiveness of the obligors signature. Produce the instrument. KRS 355.3-308(2) states, If the validity of signatures is admitted or proved and there is compliance with subsection (1) of this section, a plaintiff producing the instrument is entitled to payment if the plaintiff proves entitlement to enforce the instrument under KRS 355.3-301, unless the defendant proves a defense or claim in recoupment. If a defense or claim in recoupment is proved, the right to payment of the plaintiff is subject to the defense or claim, except to the extent the plaintiff proves that the plaintiff has rights of a holder in due course which are not subject to the defense or claim. iii. Prove that he is a person entitled to enforce the instrument. Three ways to be PETE under 355.3-301: Person entitled to enforce an instrument means: (1) The holder of the instrument; (2) A nonholder in possession of the instrument who has the rights of a holder; or (3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to KRS 355.3-309 or KRS 355.3-418(4). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

ii.

27

a)

(1) Negotiation 3-201: (1) Negotiation means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder. (2) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone. i) The instrument sued on is payable to order and can be negotiated only by the endorsement of the Bank of Commerce and completed by delivery. Bank of Commerce of Louisville v. Abell, 184 S.W.2d 86, 89 (Ky. 1944). Harponola Co. v. Conklin, 266 S.W. 626 (Ky. 1924). This case from the old Court of Appeals stands for a few important propositions. First, it is the Plaintiffs burden to prove the elements of negotiation. Second, mere possession of a note payable to the order of another is subject to a motion to dismiss. Transfer of possession. a. The transfer of possession requires the physical delivery of the note for the purpose of giving the person receiving delivery the right to enforce the instrument. In re Wells, 407 B.R. 873 (Bkrtcy. N.D. Ohio 2009). Banks physical possession of note (and date of indorsement) is a genuine issue of material fact that precludes summary judgment. In re Koontz, 2010 WL 5625883 (Bankr. N.D. Ind. Sep. 30, 2010).

ii)

iii)

b.

28

iv)

Indorsement by the holder. a. b. Blank indorsements. KRS 355-109: (1) A promise or order is payable to bearer if it: (a) States that it is payable to bearer or to the order of bearer or otherwise indicates that the person in possession of the promise or order is entitled to payment; (b) Does not state a payee; or (c) States that it is payable to or to the order of cash or otherwise indicates that it is not payable to an identified person.

b)

(2) Transfer 355-3.203: (1) An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument. (2) Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument. (3) Unless otherwise agreed, if an instrument is transferred for value and the transferee does not become a holder because of lack of indorsement by the transferor, the transferee has a specifically enforceable right to the unqualified indorsement of the transferor, but negotiation of the instrument does not occur until the indorsement is made. (4) If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains no rights under this article and has only the rights of a partial assignee. i) Comment 1 to 3-203: right to enforce depends on obtaining possession of the instrument.

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ii)

Transferring the Mortgage without the Note is a nullity. a. An assignment of the deed of trust [mortgage] separate from the note has no force. Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619 (Mo. App. 2009). U.S. v. Hoffman, 826 P.2d 340, 343 (Ariz. App. 1992), overruled by Rodney v. Arizona Bank, 836 P.2d 434 (1992). The law is clear in Arizona that while an assignment of the note carries the mortgage with it, the assignment of the mortgage alone does not give the assignee any interest in the note or its proceeds.

b.

c)

(3) Lost Note (3-309). i) (1) A person not in possession of an instrument is entitled to enforce the instrument if: (a) The person seeking to enforce the instrument: 1. Was entitled to enforce the instrument when loss of possession occurred; or 2. Has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred; (b) The loss of possession was not the result of a transfer by the person or a lawful seizure; and (c) The person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. (2) A person seeking enforcement of an instrument under subsection (1) of this section must prove the terms

30

of the instrument and the person's right to enforce the instrument. If that proof is made, KRS 355.3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means. ii) Kentucky has made it easier to enforce lost notes with recent changes to UCC. Attorneys should not sign lost note affidavits. See In re Cook, 457 F.3d 561 (6th Cir. 2006).

iii)

c.

Proving holder status in practice. i. Production of the original. KRE 1003: A photocopy is admissible to the same extent as the original unless: 1) A genuine question is raised as to the authenticity of the original; or 2) In the circumstances it would be unfair to admit the duplicate in lieu of the original. ii. Allonges. a) Traders Deposit Bank v. Chiles, Thompson & Co., 14 Ky. L. Rptr. 617 at *2 (Ky. Sup. Ct. 1893): As a general rule the legal title to a negotiable paper, payable to order, passes, according to the law merchant, only by the payee's indorsement on the security itself. The established exception to this rule is, when the indorsement is made on a piece of paper so attached to the original instrument as in effect to become part thereof or be incorporated with it. This addition is called, in the adjudged cases and elementary treatises, an allonge. The device had its origin in cases where the back of the instrument had been covered with indorse-

31

ments or writing, leaving no room for further indorsements thereon. But neither the general doctrines of commercial law nor any established exception thereto make words of mere assignment and transfer of such paper, contained in a separate instrument executed for a wholly different and distinct purpose, equivalent to an indorsement within the rule which admits the payor to urge, as against the holder of an unindorsed negotiable security, payable to order, any valid defense which he had against the original payee. b) McRae stands for the common sense proposition that when indorsements and allonges start showing up in the middle of litigation, they were created for litigation (and are not therefore business records). In re Weisband, 427 B.R. 13 (Bankr. D. Ariz. 2010): a piece of paper not attached to the note at the time the note was produced was not an effective indorsement sufficient to negotiate the note to make the party a holder with standing to enforce the note. Further, the fact that the piece of paper called an allonge was not included with the copy of the note provided at an earlier date was a further indication that the allonge containing the Endorsement was not affixed to the note. See also Adams v. Madison Realty & Dev., Inc., 853 F.2d 163, 167 (3d Cir. 1988): The Codes requirement that an indorsement be firmly affixed to its instrument is a settled feature of commercial law, adopted verbatim by every American state, the District of Columbia, and the Virgin Islands. With a unanimity unusual in decisional law, the directibe has been faithfully observed. The court continues to note that this requirement serves to prevent fraud and preserves a traceable chain of title. See also HSBC v. Thompson, 2010 WL 3451130 (Ohio App. Sep. 3, 2010) holding that dismissal is appropriate when Plaintiff fails to prove that allonge is actually affixed to the Note.

c)

32

iii.

Business records exception. a) This arises with letters sent to the homeowner, payment histories, etc. For a business record to be admissible as an exception to the hearsay rule, it must meet three requirements: 1) the maker of the record as well as the person providing the information for the record must have been acting under a business duty to report the information; 2) the record must have been made in the regular practice of that business activity; and 3) the record must be made at or near the time of the activity by someone with knowledge. 9 Ky. Prac. Crim. Prac. & Proc. 27:239 (20112012). Commercial paper, though, is self-authenticating. (Note: whether something is authentic and therefore admissible under BRE has no bearing on whether admission of a copy would be unfair on KRE 1003.) The burden is on the party wishing to use the exception to establish that foundation.

b)

c)

d)

iv.

Attacking affidavits. The problems with supporting affidavits: a) They dont exist. Servicer forecloses and produces original note and mortgage endorsed in blank, but no supporting affidavits or deposition testimony that establish valid transfer to servicer. Riggs v. Aurora Loan Services, LLC, 2010 WL 1561873 (Fl. App. Apr. 21, 2010).1

This opinion was withdrawn and superseded on rehearing by Riggs v. Aurora Loan Services, LLC, 36 So.3d 932 (Fla. App. 2010). The circuit court granted summary judgment in favor of Aurora over Riggs's objections that Aurora's status as lawful owner and holder of the note was not conclusively established by the record evidence. We agree with the circuit court that Aurora sufficiently established that it was the holder of the note. Id. at 933

33

b)

They are based on computer evidence. In re Vee Vinhnee, 336 B.R. 437 (9th Cir. B.A.P. 2005), outlines a detailed inquiry for verifying the authenticity of business records See Edward J. Imwinkelried, Evidentiary Foundations, 4.03[1] (5th ed. 2002).

c)

The affiants have no idea what they are saying. i) Affidavit traditionally used by foreclosure mills is self serving, lacks credibility, and is entirely unpersuasive on the question of whether the Note and Deed of Trust were properly assigned to BAC. The statement, claiming to be the holder is a legal conclusion, not a fact, and inappropriate for such an affidavit. In re Box, 2010 WL 2228289 (Bankr. W.D. Mo. June 3, 2010) quoting Bellistri v. Ocwen Loan Servicing. Midland Funding, LLC v. Brent, 2009 WL 2437243 (N.D. Ohio Aug. 11, 2009).

ii)

d)

They are also communications for purposes of FDCPA (cannot be false or misleading) Gionis v. Javitch, Block, Rathbone, LLP, 238 F. Appx 24, 27-30 (6th Cir. 2007).

v.

Additional requirements of assignee. x Attacking sufficiency of pleadings

vi. 4.

Proving lost note cases.

Additional problems of securitization. a. Locating and reading securitization documents. x b. EDGAR

Who has standing to sue under the PSA? This question can only be answered by looking at the language of the Pooling and Servicing Agreement. See Green Tree Servicing, LLC v. Sanders for Kentucky 34

analysis. Both Green Tree and CWCapital Asset Management both find that the servicer has standing to sue on behalf of the trust, but only AFTER looking at the language in the PSA. Do not let servicers foreclose without producing the Pooling and Servicing Agreement. c. Attacking securitization processes. Servicer or other foreclosing Plaintiff must connect the dots in order to have standing to foreclose. In re Weisband. d. How securitization works. Governed by New York law: i. McKinneys EPTL 7-2.4 Act of Trustee in Contravention of the Trust. If the trust is expressed in the instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.

ii.

5.

Additional problems of MERS. a. b. Understanding MERS. Attacking MERS arguments. i. MERS is not a real party in interest. MERS has no financial interest in the notes, therefore assignees of MERS have no standing, either. In re Weisband. ii. Assignment of mortgage is totally irrelevant to question of entitlement to enforce. a) Note follows mortgage, not the other way around. Securities Inv. Co. of St. Louis v. Harrod Bros., 7 S.W.2d 492, 493 (Ky. 1928). Negotiation of note creates equitable assignment: Though the mortgage was not assigned of record, it was in effect a mortgage to Mrs. Drinkard, and the transfer of the notes operated as an equitable

b)

35

assignment of the mortgage. Drinkard v. George, 36 S.W.2d 56 (Ky.1930). WM Specialty Mortgage, LLC v. Solomon, 874 So.2d 680 (Fla. App. 2004). Possession of the note created equitable interest in the person possessing it. c) Missouri: An assignment of the deed of trust [mortgage] separate from the note has no force. Bellistri v. Ocwen. Michigan Bankruptcy: a [creditors] interest in a mortgage assigned to him must be analyzed separately from that [creditors] interest in the corresponding underlying note. In re Atlantic Mortgage Corporation, 69 B.R. 321, 324 (Bankr. E.D. Mich. 1987). Ohio Bankruptcy: Assignment of mortgage did not transfer the right to enforce the note to [Plaintiff]; it only gave that entity a claim to ownership of the Note. Plaintiff would not become PETE until compliance with the UCC for negotiation or transfer. In re Wells, 407 B.R. 873 (Bankr..N.D. Ohio 2009). See U.C.C. 3-23 cmt. 1 (2002). Assignment of mortgage after suit is filed is especially damning. i) Assignment of mortgage subsequent to initiation of suit deprives Plaintiff of standing to bring foreclosure. Wells Fargo Bank, N.A. v. Jordan, 2009 WL 625560 (Ohio App. Mar. 12, 2009). Wells Fargo Bank, N.A. v. Byrd, 897 N.E.2d 722 (Ohio App. 2008); Plaintiff bank cannot get standing halfway through the case through assignment of mortgage, but dismissal with prejudice was a little much; just dismiss without prejudice. U.S. Bank Nat. Assn v. Ibanez, 2009 WL 3297551 at *3 (Mass. Land Ct. Oct. 14, 2009) (citation omitted): While mortgagee has been defined to include assignees of a mortgage,

d)

e)

f)

ii)

iii)

36

in other words the current mortgagee, there is nothing to suggest that one who expects to receive the mortgage by assignment may undertake any foreclosure activity. iv) MERS case out of Kansas: Landmark Nat. Bank v. Kesler, 216 P.3d 158 (Kan. 2009). There are some cases against us. Deutsche Bank Nat. Trust Co. v. Pagani, 2009 WL 3440028 (Ohio App. Oct. 23, 2009): assignment of mortgage after start of suit is allowable so long as there is evidence plaintiff is the current holder and owner of the note. B. Equitable Standing 1. 2. See Equity Memo for full treatment. See also Pearman v. West Point Nat. Bank, 887 S.W.2d 366 (Ky. App. 1994). Fleet Real Estate Funding Corp v. Smith, 530 A.2d 919 (Pa. Super. Ct. 1987). Failure to review homeowners for loss mitigation options under federal program (FHA in this case) impacted the Plaintiffs equitable standing to pursue foreclosure.

v)

3.

C.

HAMP Enforcement 1. General program guidelines. a. b. 2. Standard waterfall within NPV test. Communication requirements.

Common problems. a. b. c. d. e. Failure to review. Failure to provide reason why homeowner is not eligible. Failure to calculate income correctly. Failure to request additional documentation. Failure to timely review for permanent modification.

37

D.

Affirmative Defenses 1. 2. Waiver. Equitable estoppel. x See Jury Instructions document for elements

E.

Torts 1. Fraudulent misrepresentation. x 2. See Jury Instructions document for elements

Negligent misrepresentation. x See Jury Instructions document for elements

F.

Breach of Contract 1. Breach of duty of good faith and fair dealing. a. All contracts under the UCC are governed by a duty of good faith and fair dealing: KRS 355.1-304. Kentucky law recognizes that every mortgage contract has an implied covenant of good faith and fair dealing. Pearman. i. In Pearman: A bank cannot sell real property subject to a foreclosure proceeding to a third party during the proceeding. To do so violates the implied covenant of good faith and fair dealing. Before the foreclosure proceedings were complete, the West Point Bank sold the house to a third party for a profit. The court held that the bank had a duty to act in a bona fide manner and this sale ran contrary to that duty. Harvest Homebuilders LLC v. Commonwealth Bank & Trust Co., 310 S.W.3d 218 (Ky. App. 2010). The duty of good faith and fair dealing does not extend to an obligation to accept a third party offer to purchase a property subject to foreclosure.

b.

ii.

2.

Mortgage servicing. In re Stewart, 391 B.R. 327 (Bankr. E.D. La. 2008). Exhaustive, damning, inside-look at the mortgage servicing industry; bogus fees not allowed, servicers multiple late fees not allowed, legal fees partly not allowed. 38

G.

Statutory Violations 1. 2. 3. TILA. RESPA. HOEPA. Yield-Spread-Premium as a HOEPA point and fee: Short v. Wells Fargo Bank Minnesota, N.A., 401 F.Supp.2d 549 (S.D. W.Va. 2005). 4. Kentucky Consumer Protection Act. a. UDAP: KRS 367.110-367-300. i. People protected: people who purchased goods or services primarily for personal, family, or household purposes. a) Gooch v. E.I. Dupont de Nemours & Co., 40 F.Supp.2d 857, 865 (W.D. Ky. 1998). Keeton v. Lexington Truck Sales, Inc., 275 S.W.3d 723, 726 (Ky. App. 2008).

b)

ii.

Burden of proof: Under KCPA, a consumer must demonstrate intentional or grossly negligent conduct which amounts to substantial wrongs rather than mere irritations. Taylor v. First Security Trust Bank, Inc., 2008 WL 4267847 (Ky. App. Sep. 19, 2008). Credit as service under KCPA. A federal court has interpreted case law and the KCPA to determine that the sale of credit, so long as it was purchased for personal use, is covered by KCPA. Stafford v. Cross Country Bank, 262 F. Supp.2d 776, 792-793 (W.D. Ky. 2003).

iii.

iv.

Mortgages and real estate. a) KCPA does not apply to real estate transactions such as a contract with a builder to build a home. Craig v. Keene, 32 S.W.3d 90 (Ky. App. 2000). KCPA does not apply to purchase money mortgage transactions. Todd v. Ky. Heart-

b)

39

land Mortgage, Inc., 2003 WL 21770805 (Ky. App.). c) KCPA does not apply to mortgages made for business or commercial uses. Durbin v. Bank of the Bluegrass & Trust Co., 2006 WL 1510479 (Ky. App. Aug. 1, 2003)

v.

Jury instructions. x See Jury Instructions Document for elements

vi.

Critical questions. a) Is servicing a good or service that can be purchased? Can violations of HAMP be an unfair or deceptive act or practice? Can statements made to homeowners during the loan modification process be KCPA violations?

b)

c)

b. 5.

Home solicitation.

FDCPA. Law firms as debt collectors: Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C., 214 F.3d 872 (7th Cir. 2000). FDCPA applies to lawyers. FDCPA prohibits law firms statement of debt that only includes principle balance but does not include the interest, late charges, and other charges.

6.

FCRA. Credit card case: whether credit card companys inquiry into a consumers dispute satisfies the requirements of the FCRA is a question for the jury: Johnson v. MBNA America Bank, NA, 357 F. 3d 426 (4th Cir. 2004).

7.

Proving joint venture. Proving joint venture between loan brokers, title companies, realtors, and/or loan originators.

H.

Punitive Damages 1. Available in fraudulent misrepresentation, Kentucky Consumer Protection Act.

40

2.

Compensatory damages are not necessary in order for a jurys award of punitive damages to survive appeal. Roberie v. Vonbokern, 2006 WL 2454647 (Ky. Aug. 24, 2006). Jurors allowed to consider the financial resources of defendant in awarding punitive damages. Provost v. City of Newburgh, 262 F.3d 146,163 (2nd Cir. 2001).

3.

I. J.

Discovery Requests Defeating Summary Judgment Motions 1. Homeowner must have opportunity to complete discovery. Suter v. Mazyck, 226 S.W.3d 837, 841 (Ky. App. 2007): Entry of judgment is proper only after the party opposing summary judgment has been given ample opportunity to complete discovery and then fails to offer controverting evidence. 2. Fleet Real Estate Funding Corp v. Smith. Mortgagees failure to comply with loss mitigation procedures (FHA in this case) created a genuine issue of material fact that precluded foreclosure (and impacted the foreclosing Plaintiffs equitable standing).

K.

Protecting Your Client Following Foreclosure x Securing a release of the lien: KRS 382.365. (Kates bonanza claims)

III.

PART TWO: HELPING CLIENTS PURSUE ALTERNATIVES TO FORECLOSURE A. B. Preparing the Client to Consider Options Leaving the House 1. Avoiding foreclosure. a. b. c. 2. Sale. Deed-in-lieu. Short sale.

Mitigating the impact of foreclosure. a. b. Chapter 7 bankruptcy. Cash-for-keys.

41

C.

Saving the House 1. Loan modification. a. b. c. d. 2. 3. General considerations. HAMP. In-house products. Forbearance agreements.

Chapter 13 bankruptcy. The res. a. b. c. Repayment. Reinstatement. Refinance.

4.

Reverse mortgage.

42