Saturday, May 31, 2008

NY Fed, City Bar Announce Formation Of Pro Bono Lawyer Group To Help Homeowners Facing Foreclosure

In New York City, Crain's New York Business reports:

  • The Federal Reserve Bank of New York and the City Bar Justice Center are joining forces to help New Yorkers in danger of losing their homes to foreclosure. The two organizations [yesterday] announced the formation of the Lawyers’ Foreclosure Intervention Network, a pro bono pilot program that will marshal the resources of the city’s legal community to assist residents facing foreclosure.

  • The program aims to narrow the gap between the number of legal aid lawyers trained to deal with foreclosures and the growing number of distressed homeowners.


  • Private lawyers rarely take on foreclosure cases because clients usually don’t have enough money to pay. The mounting crisis has stretched thin the few lawyers who work for nonprofit organizations that will take on such cases. The program will provide training to lawyers on ways to prevent unnecessary foreclosures. Lawyers will assist homeowners in assessing their options, negotiating with creditors and will represent them in court — if necessary.


  • Training sessions will be held June 18 and 19 at the City Bar [1.5 Days of Free CLE Training]. The program is one of many sprouting up across the city to help struggling homeowners, including the Center for New York City Neighborhoods, a nonprofit organization started by the city and partners.

For the story, see New legal aid program to protect homeowners (The Lawyers’ Foreclosure Intervention Network, a pro bono pilot program created by the Federal Reserve Bank of New York and the City Bar Justice Center, will assist residents facing foreclosure).

See also, New York Fed press release: New York Fed Announces Formation of the Lawyers' Foreclosure Intervention Network.

Go here for other posts on the Lawyers’ Foreclosure Intervention Network.

Friday, May 30, 2008

Facing Foreclosure? Before Walking Away, Contact The Lender & Make 'Em Produce the Note!

A recent article in Forbes reported that borrowers are increasingly viewing voluntary foreclosure (ie. walking away from the home) as a practical financial decision (see Deadbeat Homeowners Hit The Road). Such action would typically take place when the payments become unaffordable and /or when the homeowner owes more on the mortgage loan than what the home is worth.

Keep in mind that there is a decent chance that the mortgage lender or company servicing the home loan has lost the actual promissory note that was signed on the date the loan was closed. So, to anyone considering taking a hike and mailing in the keys, before you bolt (even if you are not yet in foreclosure), contact the lender and make 'em produce the note.

For other posts that reference the failure of some mortgage lenders and their attorneys of filing mandatory loan documents when starting foreclosure actions, Go Here, Go Here, and Go Here. missing mortgage foreclosure docs beta

Wednesday, May 28, 2008

Mortgage Company Tells Homeowner Current On His Mortgage Payments That It Lost The Promissory Note; Is The Lender Up To Something?

One reader recently wrote that he received a letter from his mortgage company saying that it lost his promissory note in connection with his home loan. The reader stated that he never missed a payment on his mortgage, and wonders whether this is something to be concerned about.

I can only think of two possibilities (arguably unlikely, but then again, maybe not) that a lender might be up to by placing the borrower on notice that the promissory note has been lost. Assume that the borrower does nothing to assert any legal rights that may arise in connection therewith and simply keeps making the mortgage payments. It may be that, in a possible future legal action to foreclose the mortgage, the lender might attempt to say that:

  1. the borrower's inaction in asserting any rights that arose at the time he was placed on notice of the loss of the promissory note constitutes a "waiver" of those rights, thereby preventing the borrower from raising the issue, and

  2. the borrower's continued payments on the mortgage loan after being placed on notice that the promissory note was lost possibly operates as an "estoppel" against the borrower (the borrower is estopped, or precluded, from raising the lost note as an issue).

Could the lender be laying the groundwork for a defense against having lost the promissory note in a possible future foreclosure action against the reader (and all other borrowers that it placed on similar notice)?

The only other possibility I can think of is that the reader was simply pulling my leg and never received a letter from the mortgage company in the first place.

Thoughts anyone???

Tuesday, May 27, 2008

Ownership Interest Under Equitable Mortgage Defeats Interest Of Subsequent Buyer; Lack Of Knowledge Not Enough To Sustain Bona Fide Purchaser Status

A February 14, 2008 decision of the Michigan Court of Appeals provides an illustration of how the equitable mortgage doctrine and the bona fide purchaser doctrine operate in a given case.

The case, Vernier v. Sipe (No. 276037, Mich. Ct. App., February 14, 2008), involved an arrangement whereby a real property owner ("Defendant" or "equitable mortgagor") executed a deed which, on its face, purported to convey absolute legal title to real property to another ("original grantee" or "equitable mortgagee"). The undisputed purpose of the conveyance was to provide collateral for a loan.

The original grantee subsequently conveyed its interest in the property by quit claim deed to another, and after another conveyance, the property interest ended in the hands of the Plaintiff. The Plaintiff had no knowledge of the original arrangement between Defendant/equitable mortgagor and the original grantee/equitable mortgagee.

Given the facts of the case, the trial court originally hearing the case ruled that:

  • the conveyance from the Defendant did not convey absolute legal title to the original grantee. Because the conveyance was intended to secure a debt, the conveyance was treated as an equitable mortgage;

  • because the Plaintiff had no knowledge of the original arrangement between the Defendant and original grantee, the Plaintiff was a bona fide purchaser without notice of the interest. Therefore, according to the trial court, despite that the original arrangement was ruled to be an equitable mortgage, the Plaintiff's property interest, acquired as a bona fide purchaser without notice, defeats the property interest of the Defendant under the equitable mortgage.

On appeal, the Michigan Court of Appeals ruled as follows:

  • affirmed the trial court ruling that the arrangement was an equitable mortgage, and

  • reversed the trial court ruling that the Plaintiff was a bona fide purchaser without notice, despite the fact that Plaintiff had no knowledge of the original arrangement giving rise to the equitable mortgage.

Even though the Plaintiff had no knowledge of the existence of the arrangement ultimately held to be an equitable mortgage, the Michigan appeals court (given the specific facts of the case), ruled that the Plaintiff nevertheless "had notice" of the equitable mortgage arrangement, and consequently, was not entitled to bona fide purchaser status.

The court based its ruling on the fact that Plaintiff had failed to satisfy his obligation of exercising due diligence in inquiring as to the possible existence of rights of others in the subject property. Given the specific facts of the case, the court ruled that had the plaintiff satisfied his obligation to exercise said due diligence and made the appropriate inquiries, it would have discovered the rights of the Defendant/equitable mortgagor under the equitable mortgage arrangement.

Given that the specific facts of the case are a bit convoluted, anyone interested in finding out exactly what transpired will have to read the case. What follows below are the observations of the Michigan Court of Appeals regarding the bona fide purchaser doctrine in the context of an equitable mortgage, as applied under the law of the state of Michigan (Note: For ease of reading, I made a couple of minor alterations to the excerpts from the original text of the decision below. For the exact text as it appears in the case, please refer to the court decision itself).

  • However, if the [equitable] mortgagee, i.e., Holtz, transfers the property to a bona fide purchaser for value, the interest of the equitable mortgagor, i.e., Sipe, is defeated. MCL 565.32; In re Van Duzer, [390 Mich. 571, 578; 213 N.W.2d 167 (1973)]; 1 Cameron, Michigan Real Property Law (3d ed), § 18.8, p 685.


  • A bona fide purchaser is one who has acquired a property interest for consideration and without notice of claims of interest in the property by a third party. Richards v Tibaldi, 272 Mich. App. 522, 539; 726 N.W.2d 770 (2006); 1 Cameron, Michigan Real Property Law (3d ed), § 11.20, pp 395-396. Notice may be actual or constructive and has been defined as follows:

"When a person has knowledge of such facts as would lead any honest man, using ordinary caution, to make further inquiries concerning the possible rights of another in real estate, and fails to make them, he is chargeable with notice of what such inquiries and the exercise of ordinary caution would have disclosed." [Richards, supra at 539, quoting Kastle v Clemons, 330 Mich. 28, 31; 46 N.W.2d 450 (1951).]

  • A purchaser of real estate has a duty to investigate the seller's title as follows:

"It is the duty of a purchaser of real estate to investigate the title of his vendor, and to take notice of any adverse rights or equities of third persons which he has the means of discovering, and as to which he is put on inquiry. If he makes all the inquiry which due diligence requires, and still fails to discover the outstanding right, he is excused, but, if he fails to use due diligence, he is chargeable, as a matter of law, with notice of the facts which the inquiry would have disclosed." [American Fed S&L Ass'n v Orenstein, 81 Mich. App. 249, 252; 265 N.W.2d 111 (1978), quoting Schweiss v Woodruff, 73 Mich. 473, 477-478; 41 NW 511 (1889).]


To view the court decision, see Vernier v. Sipe (No. 276037, Mich. Ct. App., Per Curiam - Unpublished, February 14, 2008).

This is an UNPUBLISHED OPINION. In accordance with Michigan Court of Appeals rules, UNPUBLISHED OPINIONS are NOT PRECEDENTIALLY BINDING under the rules of STARE DECISIS. Michigan equitable mortgage alpha Michigan bona fide purchaser

Monday, May 26, 2008

California Authorities Bag Five Suspects In Alleged Foreclosure Rescue Scam That Bilked 100s Of SoCal Homeowners; Both Criminal, Civil Charges Brought

In Southern California, The Associated Press reports:

  • Hundreds of homeowners lost the deeds to their houses and small fortunes in a scam that masqueraded as a strategy to help them avoid foreclosure, authorities said Thursday. Troubled homeowners most of them Hispanic immigrants in San Diego, Riverside, San Bernardino and Los Angeles counties were lured to foreclosure rescue seminars and conned into signing over title to their homes with the purpose of establishing their property as a federal land grant.


  • Late Wednesday, FBI and investigators from the San Diego County district attorney's office arrested William Hutchings, 62, and Xiaoke Li, 43, both of San Diego; Edgar Martinez, 30, and Diego Gil, 38. It was not immediately clear where they lived. An arrest warrant was also issued for Shawna Landis, 29, of Sorrento Valley. All face multiple counts of conspiracy, grand theft and deceitful practices as foreclosure consultants, authorities said. Prosecutors have also taken steps to freeze the defendants' assets and bank accounts, while [California Attorney General Jerry] Brown's office on Thursday sought an injunction and penalties against the company through which the scam was operated.


  • Homeowners who attended the foreclosure rescue seminars were told that they could keep lenders from taking over their properties if they signed over the grant deeds on their homes to one of the corporations, which then would record a land grant on the property, according to court documents. Some homeowners who fell for the scam paid up to $10,000 to place their home in a land grant. Others paid at least $500 up front and then made monthly rent payments to continue living in the property, authorities said.

For more, see Feds arrest four Calif. people, claim they conned homeowners.

See also:

For more on the civil charges brought by the California Attorney General, see: