New York Supreme Court Reverses Lower Court’s Ruling in Foreclosure Case; Observes eNote and Transfer History Sufficient under ESIGN

On April 13, the New York Supreme Court, Appellate Division, Second Department issued an opinion reversing a lower court order dismissing a foreclosure action against a borrower who signed a mortgage note electronically (“eNote”). New York Community Bank v. McClendon, 2016 N.Y. Slip Op. 02790 (N.Y. Supp. April 13, 2016). In the proceedings below, the lower court had granted the borrower’s motion to dismiss the foreclosure complaint for lack of standing, accepting the argument that the plaintiff mortgagee lacked standing because it could not produce a chain of valid assignments of the eNote from the original lender to itself. In opposition to the motion to dismiss, the mortgagee had submitted, among other things, a copy of the eNote and a print out of an electronic record of the transfer history of the eNote (“Transfer History”) showing a chain of transfers from the original lender to itself. The court observed that the eNote qualified as a “Transferable Record” under Section 201 of the Electronic Signatures in Global and National Commerce Act (“ESIGN”) and that a person is in “control” of a Transferable Record if “a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred.” Citing the UCC, the court further observed that the holder of the eNote would have standing to foreclose and that any person with “control” of the eNote is its holder. After establishing this legal framework, the court concluded that the Transfer History, together with the eNote, were sufficient to establish that the plaintiff mortgagee had control of the eNote under ESIGN and therefore had standing to foreclose as the holder. According to the court, because these rules governing Transferable Records applied to the eNote, the failure of the plaintiff mortgagee to produce proof of assignment was “irrelevant” and the complaint should not have been dismissed for lack of standing.


Congress Passes Bill to Extend Foreclosure Protection Element of the SCRA

On March 21, the U.S. House of Representatives passed S.B. 2393, which extends through 2017 the provision of the Servicemembers Civil Relief Act’s (SCRA) that protects servicemembers against foreclosure without a court order or waiver for one year following completion of their service. On January 1, 2016, the foreclosure protection provision reverted back to the period of active duty military service plus 90 days, rather than the period of active duty military service plus one year. Upon the President’s signature, the SCRA’s protection against foreclosure without a court order or waiver will return to the period of active duty military service plus one year through December 31, 2017.       


Eleventh Circuit Dismisses Plaintiff’s Complaint: Assignee Not Liable under TILA for Servicer’s Failure to Provide Payoff Balance

On March 1, the U.S. Court of Appeals for the Eleventh Circuit held that, as an assignee, Fannie Mae is not liable under TILA for a servicer’s failure to provide a borrower with a payoff statement. Evanto v. Federal Nat’l Mortg. Ass’n. No. 14-cv-61573 (11th Cir. March 1, 2016). The plaintiff alleged that, after foreclosure proceedings began, his servicer failed to provide the payoff balance of his mortgage within seven business days, as required under TILA 15 U.S.C. § 1639(g). Relying on the “plain meaning” of 15 U.S.C. § 1641(e), the court ruled that for an assignee of a creditor to be held liable under TILA, the violation must be apparent in the face of the “disclosure statement,” which, according to the court, the payoff statement requested by the plaintiff was not because it is provided after consummation. The court opined that “[t]here is no way that the failure to provide a payoff balance can appear on the face of the disclosure statement . . . . we reject [the plaintiff’s] argument that we should fix a supposed ‘loophole’ in the statute.” Id. at *4.

Notably, the court relied in part on informational statements from the CFPB’s website and Black’s Law Dictionary to define “disclosure statement” under TILA.

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Massachusetts AG Announces New Consumer Advocacy and Response Division

On March 3, Massachusetts AG Healey announced a new Consumer Advocacy and Response Division (CARD) intended to protect Massachusetts consumers from alleged fraud, unfair business practices, and consumer abuse. The CARD staff will assist consumers with issues such as (i) auto purchasing and financing; (ii) data security and identity theft; (iii) debt collection; and (iv) foreclosure prevention. In 2015, AG Healey’s office handled more than 2,600 consumer complaint cases, resolving issues related to debt collection, auto lending, and securing refunds for disputed charges with cellular phone carriers.


Spotlight Article: California Supreme Court Holds that Borrowers Have Standing to Challenge an Allegedly Void Assignment of the Note and Deed of Trust in an Action for Wrongful Foreclosure

Daniel Paluch Fredrick-LevinYesterday, the California Supreme Court held in Yvanova v. New Century Mortgage Corp, Case No. S218973 (Cal. Sup. Ct. February 18, 2016) that borrowers have standing to challenge an allegedly void assignment of a note and deed of trust in an action for wrongful foreclosure.  In reaching this decision, the Court reversed the rule followed by the overwhelming majority of California courts that borrowers lacked such standing.  The Court’s decision may have broad ramifications for lenders, investors, and servicers of California loans.

The Court’s Holding

In Yvanova, the borrower challenged the validity of her foreclosure on the ground that her loan was assigned into a securitized trust after the trust closing date set forth in the applicable pooling and servicing agreement, allegedly rendering the assignment void.  To date, California courts have rejected hundreds of similar claims.  In Yvanova, the Court held that “a borrower who has suffered a nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment.”  Slip. Op. at 2.  The Court’s ruling thus breathes new life into this favorite theory of the foreclosure defense bar. Read more…