A mortgage servicer can violate the Texas Finance Code by asserting legal rights it does not actually have. See McCaig v. Wells Fargo Bank, 788 F.3d 463 (5th Cir. 2015). But seemingly inconsistent communications by a servicer do not violate the Code:
“[Plaintiff] does not contend that any one letter is a misrepresentation in
and of itself but rather that the amounts differ, so the letters are misleading
as a whole. But the letters explicitly state that they are describing two different
types of obligations: notices of the entire outstanding obligation and notices
of the amount due to bring the loan current. Each category is internally consistent
and consistent with the other. [Plaintiff’s] amount to bring the loan current
continued to grow over time because she was not making adequate payments
and still occupied the property. The total outstanding obligation grew for the
same reason. The letters were not misrepresentations but, instead, were
accurate descriptions of two different types of obligations and were specifically
identified as such.”
Rucker v. Bank of America, 15-10373 (Nov. 20, 2015).
U.S. Bank sent notices of acceleration, and began foreclosure proceedings, several times before suing for judicial foreclosure. The borrowers contended that suit was time-barred. The Fifth Circuit disagreed, finding that the bank’s second notice “unequivocally manifested an intent to abandon the previous acceleration and provided the [borrowers] with an opportunity to avoid foreclosure if they cured their arrearage. As a result, the statute of limitations period under [Tex. Civ. Prac. & Rem. Code] § 16.035(a) ceased to run at that point and a new limitations period did not begin to accrue until [they] defaulted again and U.S. Bank exercised its right to accelerate thereafter.” Boren v. U.S. Nat’l Bank Ass’n. No. 14-20718 (Oct. 26, 2015).
The case of Ferguson v. Bank of New York reminds of two basic principles in the area of mortgage servicing litigation: (1) MERS can be named as a beneficiary under a deed of trust; and (2) a borrower does not ordinarily have standing to enforce the terms of a pooling & servicing agreement. The Court sidestepped an issue of whether the Texas fraudulent lien statute could apply if a lender simply transferred a lien as opposed to creating it. No. 14-20585 (Oct. 1, 2015).
Building on momentum after winning a challenge to the MERS business model, MERS succeeded in arguing that an earlier suit against Bank of America created a res judicata bar to a later suit against MERS because MERS and the bank were in privity. Warren v. MERS, No. 14-11102 (July 2, 2015, unpublished).
Three counties sued MERS (“Mortgage Electronic Registration Systems, Inc.”) for violations of various statutes related to the recording of deeds of trust (the Texas equivalent of a mortgage). In a nutshell, MERS is listed as the “beneficiary” on a deed of trust while the note is executed in favor of the lender. “If the lender later transfers the promissory note (or its interest in the note) to another MERS member, no assignment of the deed of trust is created or recorded because . . . MERS remains the nominee for the lender’s successors and assigns.” The counties argued that this arrangement avoided significant filing fees. The Fifth Circuit affirmed judgment for MERS, finding (1) procedurally, that the Texas Legislature did not create a private right of action to enforce the relevant statute and (2) substantively, that the statute was better characterized as a “procedural directive” to clerks rather than an absolute rule. Other claims failed for similar reasons. Harris County v. MERSCORP Inc., No. 14-10392 (June 26, 2015).
Disputes between borrowers and mortgage servicers are common; jury trials in those disputes are rare. But rare events do occur, and in McCaig v. Wells Fargo Bank, 788 F.3d 463 (5th Cir. 2015), a servicer lost a judgment for roughly $400,000 after a jury trial.
The underlying relationship was defined by a settlement agreement in which “Wells Fargo has agreed to accept payments from the McCaigs and to give the McCaigs the opportunity to avoid foreclosure of the Property; as long as the McCaigs make the required payments consistent with the Forbearance Agreement and the Loan Agreement.” Unfortunately, Wells’s “‘computer software was not equipped to handle’ the settlement and forbearance agreements meaning ‘manual tracking’ was required.” This led to a number of accounting mistakes, which in turn led to unjustified threats to foreclose and other miscommunications.
In reviewing and largely affirming the judgment, the Fifth Circuit reached several conclusions of broad general interest:
- The “bona fide error” defense under the Texas Debt Collection Act allows a servicer to argue that it made a good-faith mistake; Wells did not plead that defense here, meaning that its arguments about a lack of intent were not pertinent to the elements of the Act sued upon by plaintiffs;
- The economic loss rule did not bar the TDCA claims, even though the alleged misconduct breached the parties’ contract: “[I]f a particular duty is defined both in a contract and in a statutory provision, and a party violates the duty enumerated in both sources, the economic loss rule does not apply”;
- A Casteel – type charge issue is not preserved if the objecting party submits the allegedly erroneous question with the comment “If I had to draft this over again, that’s the way I’d draft it”;
- The plaintiffs’ lay testimony was sufficient to support awards for mental anguish; and
- “[A] print-out from [plaintiffs’] attorney’s case management system showing individual tasks performed by the attorney and the date on which those tasks were performed” was sufficient evidence to support the award of attorneys fees.
A dissent took issue with the economic loss holding, and would find all of the plaintiffs’ claims barred; “[t]he majority’s reading of these [TDCA] provisions specifically equates mere contract breach with statutory violations[.]”
Garofolo paid off her home equity note, but did not then receive the cancelled promissory note and a release of lien from the servicer, as required by the Texas Constitution, and the terms of the note. She sued for forfeiture of principal and all interest paid under the Constitution; the servicer admitted not having sent the papers, but contended that having the provision in the note was sufficient to comply with the Constitutional requirement. The Fifth Circuit certified this issue to the Texas Supreme Court: “Garofolo’s construction appears to give rise to a drastic remedy, but Ocwen’s construction appears to render the requirement a virtual nullity except in the (hopefully rare) circumstance where a lender unscrupulously attempts to enforce a paid note resulting in recoverable damages.” Garofolo v. Ocwen Loan Servicing, LLC, No. 14-51156 (June 9, 2015).
Estes sued JP Morgan Chase, alleging violations of the Texas Constitution with respect to a home equity loan. The Fifth Circuit affirmed dismissal on a basic ground: “Estes’s complaint fails to allege any connection between himself and JPMC except that Estes ‘notified [JPMC] that the original promissory note had not been returned,’ and that ‘[m]ore than 60 days have passed since plaintiff notified [JMPC] of its failure to cancel and return the promissory note.’ Considering the allegations in Estes’s complaint, and taking those allegations as true, Estes has not alleged that JPMC possessed the Note at the relevant time. He also has not alleged that he made payments to JPMC, nor has he alleged any other facts from which the Court could reasonably infer that the Note was made payable to “bearer” or to JPMC, as the definition of “holder” set forth in Tex. Bus. & Com. Code § 1.201 requires.” Estes v. JP Morgan Chase Bank, N.A., No. 14-51103 (May 20, 2015, unpublished).
Defendants claimed that a foreclosure sale produced an unfair windfall for Fannie Mae on a substantial commercial property. They alleged that Fannie Mae had a practice of making unfairly low bids on Gulf Coast properties. The Fifth Circuit observed: “As the district court held, evidence regarding Fannie Mae’s other foreclosure practices throughout the Gulf Coast region would not impact whether the subject property was sold for the amount at which it would have changed hands between a willing buyer and seller having knowledge of the relevant facts. At most, such evidence might have suggested that Fannie Mae’s conduct throughout the region affected the fair market value of the subject property. So long as the property was sold for fair market value, however, evidence of the various market forces influencing that value is not relevant to this case.” Fannie Mae v. Lynch, No. 14-60864 (June 2, 2015, unpublished).
In Barzelis v. Flagstar Bank, F.S.B., No. 14-10782 (Apr. 22, 2015), the Fifth Circuit addressed the preemption of state-law mortgage claims under “HOLA,” the Home Owners’ Loan Act of 1933, a statute governing federal savings associations. The Court held:
1. Notice and cure. “It may be the case, for example, that a state law regulating interest-rate adjustments to protect borrowers is preempted by HOLA. But that does not prevent a bank and a borrower from voluntarily agreeing to substantially the same protections in their contract . . . .”
2. Misrepresentation. “[W]here a negligent-misrepresentation claim is predicated not on affirmative misstatements but instead on the adequacy of disclosures or credit notices, it has a specific regulatory effect on lending operations and is preempted.”
3. Debt collection. Consumer protection laws “‘that establish the basic norms that undergird commercial transactions’ do not have more than an incidental effect on lending and thus escape preemption.”
Continuing an earlier post about how to sign documents, the issue of effective consent again appeared in Berry v. Fannie Mae, No. 14-10474 (April 17, 2015, unpublished). A mortgage servicer sent a trial payment plan to a borrower, which said: “This Plan will not take effect unless and until both the Lender and I sign it and Lender provides me with a copy of this Plan with the Lender’s signature.” Rejecting an argument that the servicer’s letter acknowledging the borrower’s signature waived this language, the Court enforced it and affirmed dismissal of the borrower’s claims. A similar analysis led to a similar result in Williams v. Bank of America, No. 14-20520 (May 7, 2015, unpublished).