Various sources have reported that JP Morgan Chase has temporarily halted foreclosures because of potentially flawed paperwork. One issue that has arisen is reports that the people responsible for reviewing the loan documents failed to do so, such that they were actually unable to truthfully verify that the loans were in default and the amount of the default. Chase’s stay on foreclosures follows GMAC’s halting of certain foreclosures and evictions in 23 states last week based on procedural problems in its paperwork.
According to reports, the stoppages are just temporary and will not significantly affect the overall number of foreclosures.
The Federal government has two programs to help the unemployed avoid foreclosure.
Through the Housing Finance Agency (HFA) Innovation Fund for the Hardest Hit Housing Markets (the Hardest Hit Fund), there $2 billion of assistance that will be made available to those having difficulty making their loan payments due to unemployment. This fund will be distributed to states that have been hardest hit by the downturn in the economy. Alabama will receive over $60 million. Arizona is not on the list published by the government.
The U.S. Department of Housing and Urban Development (HUD) is in the process of launching another program whereby $1 billion in assistance will be provided through the Emergency Homeowners Loan Program. That loan program will provide interim assistance for not more than 24 months to people who are or may face foreclosure due to unemployment, underemployment or medical problems.
Get more information about the foreclosure assistance programs.
Despite a broad arbitration provision in the Declaration of Covenants, Conditions and Restrictions (CC&R’s), a homeowners association’s claim for an injunction was not subject to arbitration and the association was entitled to file a lawsuit in Superior Court to obtain an injunction.
In the case of Saguaro Highlands Community Association v. Jack C. Biltis and Leigh Biltis, a dispute arose as to whether the home owner’s swing set violated the CC&R’s. The association filed a lawsuit to obtain an injunction to have the owners remove the swing set. The owners sought to dismiss the action and force the association to arbitrate the dispute. The Superior Court disagreed and the Court of Appeals affirmed. Both held that the association retained the right to pursue an injunction in Court based on the wording of the CC&R’s for that community, although the Courts noted the strong public policy favoring arbitration and based on which arbitration clauses are broadly construed.
The Arizona Court of Appeals recently decided a case where a deed of trust was mistakenly initially recorded without a legal description. In 3502 Lending, LLC v. CTC Real Estate Service, the borrower executed a deed of trust with the legal description attached as an exhibit, but the deed of trust was initially recorded without the exhibit. As between the parties to the deed of trust, the Court held that the deed was valid since it included the legal description when it was signed.
The Court next considered whether the deed of trust was superior to a later recorded deed of trust, even though the first deed of trust was recorded without the legal description. The Court held that it was, notwithstanding the initial defect in the first deed of trust, since the party holding the second deed of trust had received actual notice that there was a prior/superior deed of trust against the property.
This case reinforces the law that the recording system is for the benefit and protection of non-parties to the transaction and parties who do not have actual notice of a prior recording.
The State of Arizona has filed a lawsuit against a company accused of a foreclosure help scam. According to the allegations in the civil lawsuit, the Guardian Group charged borrowers up front fees in order to modify their loans, but rarely provided the service. The Arizona Attorney general has claimed that the company misrepresented, among other things, the amount of principal reduction to be expected, that it had investors ready to purchase their loans and the amount of refunds.
According to various economists, home prices are expected to drop overall by another 2% this year, as compared to last. The hardest hit areas, including Phoenix, may drop as much as 10% though. Earlier predictions had home prices leveling off, but recent reports state that prices will drop further before stabilizing.
On May 24, 2010, Realty Executives filed a lawsuit against its former long-time designated broker, John Foltz, in Maricopa County, Arizona Superior Court. The Complaintalleges that Foltz “engaged in a course of conduct designed, at least in part, to irretrievably damage [Realty Executives] through deliberate acts of financial and operational mismanagement, embezzlement, self-dealing and other willful misconduct and dishonest acts.” Realty Executives has brought claims for, among other things, breach of fiduciary duty/duty of loyalty, breach of contract, conversion, and breach of the implied covenant of good faith and fair dealing. Of course, the Complaint contains Realty Executives’ allegations, which have not been accepted or rejected by a judge or jury.
On June 14, 2010, Mr. Foltz filed his answer to the Complaint and a counterclaim against Realty Executives.
Investors lost billions of dollars on defective mortgage securities. Now, they understandably want to recover their losses. The investment advisers, brokers and others that sold the defective securities may have to pay. State securities and other laws prohibit misrepresentations in the sale of investments, such as mortgage backed securities. If the brokers and others knew that the securities were more risky because the underlying mortgages were defective and the brokers did not disclose that knowledge, they may be liable under state securities and other laws.
Such claims have already been investigated by, for example, the Massachusetts attorney general against Morgan Stanley. In one case involving Morgan Stanley’s reported “partner,” New Century Mortgage, the Massachusetts attorney general alleged that Morgan Stanley provided New Century with financing to provide high risk loans to low income borrowers and then Morgan packaged the loans as securities and sold the securities to investors. The loans were allegedly not correctly underwritten and violated Massachusetts laws that required the lender to ascertain the borrower’s best interests. Without admitting any wrongdoing Morgan Stanley agreed to pay a total of $102 million, including $58 million to 1,000 homeowners and $23 million in investment losses to a pension fund.
Although Arizona does not have a “borrower best interest” statute, there are Arizona laws that may provide a basis for civil claims against those that sold defective securities, including consumer fraud and securities fraud statutes, as well as common law claims for fraud and negligent misrepresentation. Berk & Moskowitz, P.C. handles most types of disputes, including claims for fraud and misrepresentation. If you or your company bought defective mortgage backed securities or other related investments, contact us.
In April 2010, the Mortgage Asset Research Institute issued its 2009 mortgage fraud report. The report gathered and analyzed various sources of data primarily regarding mortgage fraud in connection with federally insured loans. The statistics show a continued rise in mortgage fraud, even though less loans are being originated.
There was an overall increase in mortgage fraud reports (suspicious activity reports) of 5% to 8% from 2008 to 2009. Arizona now ranks 4th in the Country for incidents of mortgage fraud, having about 58% more reported fraud than expected for its volume of new loans in 2009. Notably, fraud in the appraisal increased from 22% of all fraud reported in 2008 to 33% in 2009.
Vigilance and diligence are the keys. Lenders should ensure that they verify and double check all data provided in connection with a loan.
Interested in learning more about Arizona’s Anti-Deficiency Statutes? Watch our video presentation. The video covers basic terminology, concepts and the application of Arizona’s Anti-Deficiency Statutes to trustee’s sales (non-judicial foreclosures) and judicial foreclosures.