Lenders Face Code Violations in a Post Foreclosure REO World

Georgia as a "title" state poses new problems for Lenders in REO. While the phenomenon of holding property post foreclosure by a lender is not a new concept, the current situation presents new problems and thorny issues for banks.

Banks have traditionally attempted to foreclose and then discharge their ownership out of REO as quickly as possible. The current market downturn (read that: recession in other industries; depression in real estate) is presenting code violation problems and "ownership" problems never contemplated before by lenders.

In the current market environment, lenders are finding themselves full "owners" of property for timeframes that now stretch into years. While lenders past goals have simply been to clean up the property and list it for resale, lenders now must examine the very real possibility that they will be required to: pave roads, install sewers, abate stormwater runoff, resolve environmental issues and defend themselves against local code violations.

These financial issues were never budgeted when the lenders initiated the loans and these payments for fines can only come out of the bank earnings - not the foreclosed value of the secured property. The payment for abtement, additionally, must be paid out of bank earnings. The reason that the secured property cannot pay the freight is simple economics. In a rising market value, the property either never reaches foreclosure or, if it does, it is quickly resold. In a declining market (here a rapidly declining market), the property is "negative," or "upside down," when the bank takes it REO at the foreclosure sale. There are no funds out of which to cover the deficiency and there are no funds to cover the "support" of the property. In a more robust market, the "support," was simply added (as much as possible) into the resale price; the support costs were recovered (as much as possible) in the subsequent sale from REO to the new owner.

Here, there is no new owner. Banks are faced with the possibility that these properties may remain on their REO books for a year or more. Until the recent spate of FDIC takeovers, lenders had ignored this issue. However, that is unlikely to continue.

[ This segment of the Article has been redacted. No member of the public is authorized to use the name of our firm without written permission and/or entering into an attorney client relationship with us. Any use of our name without our permission is strictly prohibited. Hugh Wood, Wood & Meredith, LLP, Atlanta, GA ]

Hugh Wood, Atlanta, Georgia

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These issues are coming to the surface in Georgia and other states.

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Recently the Georgia Business Chronicle wrote of on this issue as follows:

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Banks face environmental fines from foreclosed subdivisions
Atlanta Business Chronicle - by Joe Rauch Staff writer

October 24-30, 2008

As banks take back more lots and homes from bankrupt builders, the dirt washed away from these sites during each rainstorm is adding millions in costs statewide to their new owners.

Erosion control and other environmental issues at abandoned and foreclosed residential projects are becoming an unforeseen, but possibly large, cost for metro banks already struggling to survive. “The potential here to grow into a bigger issue is just huge,” said Bert Langley, the Mountain District manager for the Georgia Environmental Protection Division (EPD), the main state agency charged with overseeing environmental compliance at developments.

Under state law, developers and builders are required to limit erosion.
The laws are the reason for the ubiquitous black and orange silt fences at residential projects, and limiting other damage to water sources and other land.
But as builders shut their doors and banks take back lots and homes by the hundreds, compliance with those environmental laws is lapsing.

For now, according to state data, the problem is still small.
Georgia's EPD assessed $68,650 in fines in 2007 and has assessed $56,678 thus far this year, according to agency data. Those fines are concentrated in the state's rural counties, as Georgia's metro counties oversee these issues locally.

Most banks, local and state regulators said, are either unaware of the erosion control and other environmental issues at foreclosed properties, or see the cost of correcting any violations as optional when saddled with declining real estate values and other rising costs.

"They get this deer-in-the-headlights look when you tell them about this stuff," Langley said.

Some banks are being proactive.

SunTrust Banks Inc. has introduced a comprehensive environmental compliance program for its foreclosed and repossessed properties.
Regulators said the bank retained two engineering firms to oversee the properties.

Langley estimates there are 6,000 construction projects across his 37-county district, which stretches across the northern portion of the state and does not include Forsyth County.

Two-thirds of those projects are currently stalled.

With an eight-person enforcement team, Langley said his division is unable to monitor all sites, and relies largely on complaints.

Phil Mallon, Fayette County's director of public works, said his county has overseen two major subdivisions foreclosed by banks. But Mallon said his larger concern is those developments where construction stopped but the bank has not foreclosed. “Dealing with some of these sites is frustrating. You can't find the owner or the right person to talk to about complying with state law," Mallon said.

Bankers and regulators are facing this wave of new compliance issues for the first time in a housing downturn. "I've never seen anything like this in my career," said Steve Dempsey, a Forsyth County stormwater engineer who oversees erosion issues. Georgia's erosion control laws were last overhauled in 2000, when local and state agencies were brought under one standard of environmental controls.

Fines can cost as little as a few hundred dollars per day, or tens of thousands, when property owners are not compliant with state law. The fines stick to the property itself, rather than the owner. For banks taking back dozens of properties after builders have not maintained the sites for months, the fines can add up, and are passed along to the new owner. The cost to make a site compliant can be as little as a few thousand dollars for a single site, to hundreds of thousands for an entire subdivision.

With thousands of properties being seized by banks, the costs can quickly scale into the millions. Dempsey said Forsyth County is working with banks to minimize fines, but cannot eliminate them entirely.

One subdivision in Forsyth County is an example of the emerging problem.
The Greenleaf subdivision is located just outside Dawsonville on the eastern edge of the county. The property was bought for $1.97 million, according to a civil lawsuit filed by Gainesville Bank & Trust in 2006.

Since then, the land has been largely untouched, after some of the builders and developers of the site were convicted earlier this year of mortgage fraud.
The site now sits vacant, and no work is being done on the few built homes.
Bankers familiar with the project said the fines assessed by the county for erosion control exceed $4 million, roughly twice the value of the property.
Dempsey declined to comment on the subdivision, citing pending litigation.
© Atlanta Business Chron.

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Lenders in California are experiencing similar issues.

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Posted on: July 2, 2008 4:35:00 PM
Localities to Lenders: Maintain Your Foreclosures © Builder Magazine

Frustrated by the increasing number of foreclosed properties sitting vacant and untended, cities across the country are responding with ordinances that require the owners--the lenders that took back the houses--to maintain the properties or face heavy fines.

The California legislature is expected next week to pass a statewide law that would allow local governments to assess a fine of up to $1,000 a day on the owners of foreclosed properties who don’t maintain them. The bill also has strict requirements for notifying mortgage holders that the foreclosure process has started, and gives tenants living in a foreclosed property additional time to move. Considered an urgency measure, the bill would take effect immediately after being signed by the governor.

The Rhode Island General Assembly also has sent its governor a bill to sign, the Rhode Island Foreclosed Property Upkeep Act. It requires any financial institution that purchases a foreclosed property to post a bond with the municipality for 25 percent of the property’s assessed value, to be used to correct any code violations if the owner doesn’t take care of it. If the full value of the bond is used in the upkeep of the property, the owner has 10 days to file another bond in the same amount or have the property forfeited to the municipality.

Cathedral City, located in what was once the white-hot real estate market of Riverside County, Calif., is one of the cities that has recently passed laws requiring owners of foreclosed properties to register the property with the city. Among other requirements, the ordinance requires owners to pay a $70 annual registration fee, secure the property, keep it free of debris, landscape the front and side yards to neighborhood standards, clean or drain the pool, and hire a local property manager to inspect it weekly.

The procedures for enforcing the ordinance, which was passed this spring, are still being worked out, says William Soqui, chief of the Cathedral City Fire Department, which oversees code enforcement for the city.

He’s thrilled to have a mechanism to address the problems associated with the 2,000 foreclosed properties currently sitting vacant in this California desert community. The empty houses have been broken into by gang members and drug addicts, who vandalize them or use them as bases for criminal activities. Stagnant swimming pools have created breeding grounds for mosquitoes and drowning hazards.

“Keeping them crime-free and making sure they’re secured and in a condition that they’re not dragging down other property values is a daunting task,” Soqui says.
The ordinance addresses the biggest problem his department has with foreclosed properties, which is simply keeping track of who owns it.

“We’ve had to hunt for the owners and that’s been difficult,” Soqui says. “The loans get sold from one company to another. This is for us to have someone we can contact on our local level to deal with issues going on at a specific property. We can’t do anything about the foreclosure, unfortunately, but we can bring the property up to the standard of the community.”

END

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Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068


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Banks Held to A “True Market Value” Standard in Deficiency Confirmation

The Court of Appeals indicated in Cartersville Developers, LLC. v. Georgia Bank & Trust., (“GB&T”) No. A08A0533., Court of Appeals of Georgia, July 1, 2008, that it intends to continue to hold Banks to a true “true market value,” standard in a confirmation hearing post foreclosure.

In Cartersville, Supra, GB&T foreclosed on 17 townhomes. GB&T paid in at foreclosure the amount of the secured debt and then sought a deficiency judgment. At the confirmation hearing 30 days later, GB&T testified that each unit should be discounted $10,000 based on the fact that the units were “in foreclosure.” The trial court allowed the discount on each unit. On appeal, the Court of Appeals indicated that this “in foreclosure,” discount was arbitrary and erroneous and that the Trial Court, whether it was is difficult standard or not, must find – by an evidentiary hearing – the actual “true market value.” The confirmation judgment was vacated and the case remanded.

It may be that Cartersville Developers, LLC, is a signal to banks that, in this time of massive foreclosure red ink, the Courts are going to examine deficiency judgments more stringently.

The only thing novel about Cartersville, Supra, is that it exists. While perhaps cynical on this author’s part, generally, banks have been able to put on most any reasonable evidence at confirmation and walk out with a deficiency judgment. [It should be noted that deficiency judgments post foreclosure are not particularly common in Georgia.] Maybe Cartersville, Supra, will raise the evidence bar a bit and make banks work toward proving “true market value,” in post-foreclosure deficiency.

Hugh Wood, Atlanta, Georgia

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The relevant Georgia Confirmation statute is:

§ 44-14-161. Sales Made On Foreclosure Under Power Of Sale -- When Deficiency Judgment Allowed; Confirmation And Approval; Notice And Hearing; Resale.

(a) When any real estate is sold on foreclosure, without legal process, and under powers contained in security deeds, mortgages, or other lien contracts and at the sale the real estate does not bring the amount of the debt secured by the deed, mortgage, or contract, no action may be taken to obtain a deficiency judgment unless the person instituting the foreclosure proceedings shall, within 30 days after the sale, report the sale to the judge of the superior court of the county in which the land is located for confirmation and approval and shall obtain an order of confirmation and approval thereon.
(b) The court shall require evidence to show the true market value of the property sold under the powers and shall not confirm the sale unless it is satisfied that the property so sold brought its true market value on such foreclosure sale.
(c) The court shall direct that a notice of the hearing shall be given to the debtor at least five days prior thereto; and at the hearing the court shall also pass upon the legality of the notice, advertisement, and regularity of the sale. The court may order a resale of the property for good cause shown.

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CARTERSVILLE DEVELOPERS, LLC
v.
GEORGIA BANK & TRUST.
No. A08A0533.
Court of Appeals of Georgia,
July 1, 2008
Smith, Presiding Judge.
Cartersville Developers, LLC, appeals from the Bartow County Superior Court's order confirming a foreclosure sale by Georgia Bank & Trust. Because the trial court applied the wrong legal standard when confirming the foreclosure, we must vacate its order and remand this case for further proceedings.
"At a confirmation hearing, the judge sits as the trier of fact and his findings and conclusions have the effect of a jury verdict; therefore the trial judge's findings should not be disturbed by this court if there is any evidence to support them." (Citations and punctuation omitted.) Wilson v. Metropolitan Fed. Sav. & Loan Assoc., 196 Ga.App. 588, 589 (396 S.E.2d 546) (1990). The facts in this case are not disputed. Georgia Bank & Trust purchased 17 town homes built by Cartersville Development at a foreclosure sale, paying $129,500 for each two-bedroom unit and $130,900 for each three-bedroom unit. A real estate appraiser hired by Georgia Bank & Trust testified that he valued the town homes at $128,600 for each two-bedroom unit and $130,000 for each three-bedroom unit. The appraiser acknowledged that in arriving at these values he made a $10,000 deduction because the properties were "in foreclosure." According to the appraiser, his assignment included taking into account that the properties were under foreclosure and that "homes that sold in foreclosure tended to sell for approximately eight to twelve thousand dollars less than homes that were not under foreclosure that were similar competitive homes in the market." Georgia Bank & Trust submitted no other evidence demonstrating the specific fair market value of the town homes. A real estate appraiser hired by Cartersville Development gave both the two-bedroom and three-bedroom units a value of $150,000.
During the confirmation hearing, Cartersville Development argued that it was inappropriate for the superior court to consider the $10,000 foreclosure discount and that the minimum value for the units established by the evidence was approximately $140,000. The trial court rejected this argument and concluded that it was obligated only to determine if its "judicial conscience was shocked" by any disparity between the foreclosure sale price and the true market value.
Cartersville Development asserts in this appeal that the trial court erred by confirming the sale based on an appraisal that discounted the value of the properties by $10,000 because they were in foreclosure. We agree.
The standard to be applied by a trial court in an action by a lender to confirm a foreclosure sale differs from that used in an equity action filed by the borrower to set aside a foreclosure sale. Grizzle v. Federal Land Bank of Columbia, 145 Ga.App. 385, 388 (244 S.E.2d 362) (1978); Federal Deposit Ins. Corp. v. Ivey-Matherly Constr. Co., 144 Ga.App. 313, 315 (241 S.E.2d 264) (1977). A different rule applies because the lender's right to foreclose is governed by statute, OCGA § 44-14-161 (b), and a judicial confirmation "that the property brought at least its true market value on the foreclosure sale" is a condition precedent to the lender's right to obtain a deficiency judgment against the borrower. See Wheeler v. Coastal Bank, 182 Ga.App. 112, 114 (1) (354 S.E.2d 694) (1987).
In an action brought by a borrower to set aside a foreclosure sale,
inadequacy of price paid upon the sale of property under power will not of itself and standing alone be sufficient reason for setting aside the sale. It is only when the price realized is grossly inadequate and the sale is accompanied by either fraud, mistake, misapprehension, surprise or other circumstances which might authorize finding that such circumstances contributed to bringing about the inadequacy of price that such a sale may be set aside by a court of equity.
(Citations omitted.) Giordano v. Stubbs, 228 Ga. 75, 79-80 (3) (184 S.E.2d 165) (1971). The lender's right to obtain a deficiency judgment is not directly at stake in a motion to set aside a foreclosure sale.
A trial court cannot confirm a foreclosure sale, on the other hand, "unless it is satisfied that the property so sold brought its true market value." (Citation, punctuation and footnote omitted.) Wilson v. Prudential Industrial Properties, 276 Ga.App. 180 (1) (622 S.E.2d 890) (2005). True market value "is the price that the property will bring when it is offered for sale by one who is not obligated, but has the desire to sell it, and is bought by one who wishes to buy it, but is not under a necessity to do so." (Citation and punctuation omitted.) Id. at 181 n.1.
Based on this definition, this court has previously found that a trial court erred by confirming a foreclosure sale based upon "evidence of the 'quick sale' value of the subject property because such a valuation does not reflect the price that would be obtained in a sale under the usual market conditions." (Citation omitted.) Guthrie v. Ford Equipment Leasing Co., 206 Ga.App. 258, 261 (1) (424 S.E.2d 889) (1992). The appraiser's $10,000 foreclosure deduction in this case is precisely the type of valuation precluded by our opinion in Guthrie.
The trial court relied upon this court's opinion in Darby & Assoc. v. Federal Deposit Ins. Corp., 141 Ga.App. 78, 79 (232 S.E.2d 615) (1977), to confirm the foreclosure sale at issue here. In Darby, this court stated in dicta that "[t]he purpose of confirmation hearings is to establish that the sale was fairly conducted and that any disparity between value and sale price, if it exists, is not such as to shock the judicial conscience. Brooks v. Bast, 242 Md. 350, 219 A.2d 84, 15 ALR3d 1265, 1271; Giordano, [supra]." Id. at 79 (1).
We find that the trial court erred in applying this language to confirm a judicial sale when no construction of the evidence would authorize a finding that the sale price was at least the true market value of the property. This language was impliedly overruled in Ivey-Matherly Constr. Co., supra, where we held that the rule set out by the Georgia Supreme Court in Giordano, supra, should not be applied in proceedings to confirm a foreclosure sale, but only in equity cases to set aside a foreclosure sale. 144 Ga.App. at 315. We now expressly disapprove the use of the above-quoted language in Darby, supra, in actions to confirm a judicial sale where the evidence demonstrates that the sale price is not at least as much as the true market value of the property.
Because the trial court applied the wrong legal standard when determining whether to confirm the foreclosure sale, we vacate its order and remand this case to the trial court for further proceedings consistent with this opinion. Wheeler, supra, 182 Ga.App. at 114 (1); Gutherie, supra, 206 Ga.App. at 261-262 (2).
Judgment vacated and case remanded with direction. Barnes, C. J., Johnson, P. J., Blackburn, P. J., Ruffin, P. J., Andrews, Miller, Ellington, Phipps, Mikell, Adams, and Bernes, JJ., concur.


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Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

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Affidavit of Title Under Tax Deed

The Georgia Supreme Court has again indicated that if the owner of a tax deed goes to the trouble of barring the right or redemption (and, thus, vesting ownership in the tax deed owner) the owner must file some indication on the land records of the bar redemption or risk the loss of the tax property.

What is disappointing about this ruling and the Official Code of Georgia Annotated, is that there is no form, no deed or indicated filing to show all the world that the right of redemption has been barred. There is a historical record of the legal organ publication; however, the legal advertisement is not of record on the land records.

Our firm has, therefore, created an “Affidavit of Title Under Tax Deed,” that we file after we bar the right of redemption for a client. The Clerk of Court, generally, will not accept a “deed” or some other muniment of title; however, the Clerk must accept an Affidavit affecting title. Thus, we file an Affidavit. Had Alvin Washington, filed our document on the land records, he probably would have won his case. Washington v. Mckibbon Hotel Group, Inc., Case No. S08A0584, Supreme Court of Georgia, July 11, 2008.

Hugh Wood, Atlanta, Georgia.

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The form we file (redacted) is:


After Recording Return to:

Wood & Meredith, LLP Cross Ref.: DB 00000 P 00
Attorneys at Law
3756 Lavista Road
Suite 250
Atlanta (Tucker), Georgia 30084
P: 404-633-4100
F: 404-633-0068

STATE OF GEORGIA

COUNTY OF _________

AFFIDAVIT OF
TITLE UNDER TAX DEED


This is Notice to All the World:

That on December 00, 2008, the Ex Officio Sheriff of [ Insert County ] County, Sheriff acting for and on behalf [ Insert County ] County, and due to the failure of the then record owner of the real property at that time, Acme Properties, Inc., to pay the property taxes as they had become due and payable to [ Insert County ] County, did grant, bargain, sell, alien and convey, at public outcry, to Alpha & Beta Development, Inc. of Atlanta, Georgia, for and in the Consideration of $00,000.00, the real property described below as follows:

ALL THAT TRACT or parcel of land lying and being in Land Lot [Insert Legal Desription] hereinafter "Subject Property."

The Tax Commissioner and Ex Officio Sheriff of [ Insert County ], by public sale, granted, bargained, sold and conveyed the property to Alpha & Beta Development, Inc., pursuant to the sale of properties by tax deed, the tract of land, subject to the right of redemption by the owner(s), with all singular rights, members and appurtenances thereof, being, and belonging, or in anywise appertaining, to the proper use and benefit of Alpha & Beta Development, Inc. after the valid extinguishment of the owner(s) right of redemption.
Pursuant to the purchase of the tax deed and in compliance with OCGA § 48-4-42, Alpha & Beta Development, Inc. now shows all the World that Notice was sent to the entities, parties and individuals who possessed any interest in the property in order to forever foreclose the right of redemption. The tax deed to which the notice related, is recorded in the Office of the Clerk of Superior Court of [ Insert County ] County, Georgia, in Deed Book 00000 at Page 00. These notices were sent certified and regular mail, and informed the receiver that the property could be redeemed at any time before November 00, 2008, by payment of the redemption price as provided by law pursuant to OCGA § 48-4-42. Pursuant to law, the Notice of the Right to Redeem was published in the legal organ of [ Insert County ] County, The County Legal Organ, on September 00, 00, October 00, and 00, 2008. The last day to redeem, November 15, 2008, passed with no redemption taking place.
In as much as Alpha & Beta Development, Inc. has provided proper notice of the right to foreclose the right of redemption as provided by law, and no redemption having been made by any former owner or creditor, Alpha & Beta Development, Inc. now shows all the World that the property is now no longer subject to the right of redemption.
Alpha & Beta Development, Inc. hereby states that it is now the fee simple owner, as against all the World of all rights, members, appurtenances and all incidents of ownership, whether surface fee, subsurface fee and any and all mineral interests in the land, as against all claimants in all the world, wherever situate.
Alpha & Beta Development, Inc. hereby further declares that it will forever defend its right and title from the date it acquired it, November 00, 2008, it to any Grantee against the claims of all persons whomsoever.
IN WITNESS WHEREOF, Alpha & Beta Development, Inc. has caused this instrument to be executed and sealed the day and year written below.


_____________________________
Alpha & Beta Development, Inc.

By:______________________
Its: ______________ (Seal)

[ Insert Address ]


__________________________
Unofficial Witness



Sworn to and subscribed to before
me this the ____ day of ______, 2008.


___________________________
Notary Public


___________________________
My Commission Expires

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WASHINGTON
v.
McKIBBON HOTEL GROUP, INC.
No. S08A0584
Supreme Court of Georgia
July 11, 2008
CARLEY, Justice.
At issue in this case is title to an almost triangular, 0.082-acre parcel of real property. Vernita Kearse originally had record title, but the property was sold for nonpayment of taxes. Charles Layton was the purchaser of the property and received a tax deed in 1982, but he then lost the property due to nonpayment of taxes. Johnnie Mae Shedrick purchased the property and received a tax deed in 1984. She also lost the property for nonpayment of taxes, and it was purchased by Appellant Alvin Washington, who received a tax deed to the property in 1990.
Appellee McKibbon Hotel Group, Inc., which owns property contiguous to the parcel of land at issue, purchased Mr. Layton's interest in 2006, and brought an action for quiet title in 2007, claiming title to the property by means of a right of redemption which it acquired through that purchase. Appellant claimed title through his purchase of the property at a tax sale followed by his purported foreclosure of the rights to redeem the property from the sale pursuant to OCGA § 48-4-45 or, alternatively, through the ripening of his tax deed by prescription into fee simple title under OCGA § 48-4-48 (b). In accordance with OCGA § 23-3-63, the case was submitted to a special master, who recommended issuance of a decree which vested fee simple title in Appellee. The trial court approved and adopted the special master's report, and entered a decree vesting title in Appellee. Appellant appeals from that order.
1. The trial court, through its adoption of the special master's report, concluded that Appellant's claim of foreclosure of the rights to redeem failed because "the documentary record is silent as to any actions taken by him in this regard" and, even if that were not so, "he still failed to set out all of the requisite requirements for a barment, such as notice to any occupants of the property and all persons with any interest of record."
"[O]ne seeking to bar redemption under OCGA § 48-4-45 must comply with its notice requirements." Blizzard v. Moniz, 271 Ga. 50, 53 (518 S.E.2d 407) (1999). However, regardless of whether the trial court erred in finding that Appellant failed to comply with those notice requirements, the trial court did correctly conclude that his claim of foreclosure of all rights to redeem must fail "since the documentary record is silent as to any actions taken by him in this regard." We take this statement to refer to the trial court's previous finding that the county real estate records do not contain an entry memorializing the successful completion of the foreclosure of the right of redemption. "Any original notice [of such foreclosure] together with the entries on the notice may be filed and recorded on the deed records in the office of the clerk of the superior court of the county in which the land is located." OCGA § 48-4-46 (d).
Even assuming that Appellant's evidence documenting the steps he took in 1992 to foreclose the rights of redemption reflects compliance with OCGA § 48-4-45 as a matter of law, there nevertheless is not any evidence of record that those steps were successfully completed. Indeed, this litigation would not have taken place had the purported foreclosure of the right of redemption been filed and recorded. Appellee acquired the interest of a tax deed grantee with notice only that Appellant, as a subsequent tax deed grantee, held an inchoate or defeasible title under the laws of this state and that Appellant's title could be perfected upon foreclosure of all senior rights of redemption. However, Appellee did not have any notice that such foreclosure had been accomplished so that Appellant's interest through his junior tax deed became a perfect fee simple title. See Bennett v. Southern Pine Co., 123 Ga. 618 (51 SE 654) (1905) (a tax deed constitutes record notice only that the grantee has an inchoate title subject to redemption). Compare Herrington v. LaCount, 225 Ga. 232, 233-234 (167 S.E.2d 631) (1969) (where the seven-year period of repose provided under the law in effect from 1949 to 1978 had expired, see Moultrie v. Wright, 266 Ga. 30, 31-32 (1) (464 S.E.2d 194) (1995), the lack of a foreclosure of redemption on record was insufficient to prove that fee simple title had not vested in grantee of tax deed or in his assignees). Thus, with respect to Appellant's interest as a result of his purported foreclosure of the rights to redeem, Appellee stands in the position of a good-faith purchaser for value without notice.
2. Even though Appellant failed to give record notice of the allegedly complete foreclosure of redemption, we still must address whether his 1990 tax deed title ripened by prescription into fee simple title four years after the execution of the tax deed. See OCGA § 48-4-48 (b-d).
In order for a tax deed title to ripen by prescription into fee simple title, the plain language of OCGA § 48-4-48 (b) requires adverse possession, as set forth in OCGA § 44-5-161, by the tax deed grantee for a period of four years. Mark Turner Properties v. Evans, 274 Ga. 547, 549 (2) (554 S.E.2d 492) (2001); Blizzard v. Moniz, 271 Ga. 50, 54 (518 S.E.2d 407) (1999). Under OCGA § 44-5-161 (a) (3), it is mandatory that possession, in order to be the foundation of prescriptive title, "be public, continuous, exclusive, uninterrupted, and peaceable ...." Furthermore, "the purchaser at a tax sale does not have constructive possession of the premises. [Cit.]" Mark Turner Properties v. Evans, supra.
Actual possession of lands may be evidenced by enclosure, cultivation, or any use and occupation of the lands which is so notorious as to attract the attention of every adverse claimant and so exclusive as to prevent actual occupation by another.
OCGA § 44-5-165. "Where there is no evidence of enclosure or cultivation, notoriety and exclusivity become questions of fact .... [Cits.]" Friendship Baptist Church v. West, 265 Ga. 745 (462 S.E.2d 618) (1995).
In the report adopted by the trial court, the special master resolved these questions of fact as follows:
Although [Appellant's] possession factually meets four of the tests for prescription listed [in OCGA § 44-5-161], he failed to establish by a preponderance of the evidence facts which satisfy the third requirement, that his possession was public, continuous, exclusive, uninterrupted and peaceable. His testimony was unpersuasive that he did anything other than pay the taxes on the property and occasionally cut the grass. There is not evidence of any occupancy by himself or anyone else on his behalf, nor that the premises were cultivated, fenced or in any other way utilized so as to provide notice to other persons of his interest in the property. It is apparent that the City performed much of the maintenance on the property as [Appellant] was admittedly unable to do so, including demolition of the structure on the property, which was never occupied. Thus, his claim of prescription under the statute fails.
Although the nature and situation of the property and the uses to which it can be applied are proper considerations, "the fact that the land may be useless for most purposes will not relieve the claimant of the necessity of establishing such possession as will meet the requirements of law and serve to warn the true owner of his adverse claim." 1 Pindar's Ga. Real Estate Law and Procedure § 12-28, p. 825 (6th ed. 2004) (citing McCook v. Crawford, 114 Ga. 337, 339 (40 SE 225) (1901), which held that use of the land for timber cutting and as range for livestock did not constitute actual possession, that at least a fence could have been erected even if it was expensive and troublesome, and that, if the character of the property makes it truly impossible to be in actual possession thereof, title cannot be acquired by prescription, but only by written evidence of title).
The findings of the trial court in this case show that Appellant "did mow and occasionally clean up the area, but that is not generally sufficient to constitute actual possession, much less to require such conclusion as a matter of law. [Cit.]" Friendship Baptist Church v. West, supra at 746. Furthermore, "[p]ayments of taxes 'are insufficient to establish prescriptive title, however long continued, even though accompanied by constant assertions of title.' [Cits.]" Mark Turner Properties v. Evans, supra. Accordingly, neither Appellant's payments of taxes nor occasional cleanup and mowing are
as notorious or exclusive as ... enclosure or cultivation would be. Therefore, the issue of actual possession "becomes a question of fact for the jury. (Cit.)" [Cit.] Where[, as here,] there is some evidence on either side of this issue, a reviewing court should not disturb the verdict. [Cit.]
Friendship Baptist Church v. West, supra. Thus, the trial court did not err when it concluded that Appellant's tax deed did not ripen by prescription into a fee simple title. The opposite conclusion could be reached only by overruling Friendship Baptist Church or by wholly disregarding that controlling precedent.
3. The trial court also correctly determined that Appellee holds the senior right to redeem the property and is entitled to do so from Appellant. Because Appellee's calculations of the redemptive price were unrefuted, the trial court ordered Appellant to execute a quitclaim deed to Appellee upon receipt of the tendered money. Indeed, Appellant did not offer any evidence to the contrary at the special master's hearing. Accordingly, the judgment of the trial court is affirmed.
Judgment affirmed.
All the Justices concur, except Sears, C. J., who concurs in the judgment only and Benham, J., who dissents.

& & &

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

& & &

Equitable Subrogation :: Muddy Waters

The Court of Appeals recently muddied the waters of equitable subrogation in Georgia. In a fact pattern that can only arise in our disjointed and schizophrenic filing system, Washington Mutual, FA ("WAMU")foreclosed on the same property on the same day as another first lienholder, Secured Equity Financial, LLC ("Secured Equity").

Pretermitting the creative arguments of notice put forth by the lawyers, Secured Equity purchased a small second mortgage which stated that it was "second" to other loans on the Subject Property and was "second" when created. The borrowers refinanced the underlying first mortgage. The underlying first mortgage was cancelled and the new "refi" first was delayed in recording. Thus, the second mortgage jumped ahead of the first mortgage on the real estate records and became, at least in raw date priority, the "first" mortgage. (In Georgia, they are actually Security Deeds).

In the comedy of lien priority, an investor buys the second and forecloses it as the first. WAMU, unbeknownst to Secured Equity forecloses its interest the same day, at the same time on the same courthouse steps.

Both lenders claim they own the subject property after the foreclosure and suit ensues. Race notice recording shows that Secured Equity was first, but a fact issue exists with regard to the language of its "second" security deed and, perhaps, actual notice to Secured Equity. WAMU shows that it refinanced a first and was to be given first priority under the refi security deed.

The Fulton Superior Court bluntly applied (perhaps without a hearing) the doctrine of equitable subrogation. It voided Secured Equity's ownership and placed WAMU in sole ownership of the Subject Property.

In reviewing the case, the Court of Appeals restated the Doctrine of Equitable Subrogation in Georgia, as follows:

Equitable subrogation means that "in certain circumstances, a lender who pays off the lien of a senior creditor may step into the shoes of the senior creditor as to the priority of the senior creditor's lien. [Cit.]" Greer v. Provident Bank, 282 Ga.App. 566, 568 (639 S.E.2d 377) (2006). The Supreme Court set out the complete rule in Davis v. Johnson: Where one advances money to pay off an encumbrance on realty either at the instance of the owner of the property or the holder of the encumbrance, either upon the express understanding or under circumstances under which an understanding will be implied that the advance made is to be secured by the senior lien on the property, in the event the new security is for any reason not a first lien on the property, the holder of the security, if not chargeable with culpable or inexcusable neglect, will be subrogated to the rights of the prior encumbrancer under the security held by him, unless the superior or equal equity of others would be prejudiced thereby. . . . (Citations and punctuation omitted.) 241 Ga. 436, 438 (246 S.E.2d 297) (1978). See also OCGA § 10-7-56 ("A surety who has paid the debt of his principal shall be subrogated, both at law and in equity, to all the rights of the creditor and. . . shall rank in dignity the same as the creditor whose claim he paid."). The typical remedy is that equity will set aside a cancellation of the original security and revive it "for the benefit of the party who paid it off." Davis, 241 Ga. at 438. Secured Equity Financial, LLC Et Al v. Washington Mutual Bank, F. A., No. A08A0376, Court of Appeals of Georgia, Fourth Division June 23, 2008.

The Court of Appeals seemed concerned that there were factual disputes that the lower court glossed over, to wit: "By contrast, in the present case the original security deed had been cancelled of record long before Secured Equity purchased Bank One's interest," ... "We hold that Washington Mutual has failed to establish as a matter of undisputed fact that Secured Equity was on notice of a possible equitable subrogation claim. The trial court erred by granting summary judgment for this reason." The Case was remanded. (WAMU has applied for Cert.).

In remanding , the Court wrote: "Subrogation is of equitable origin and benevolence. It is founded upon the dictates of refined justice. Its basis is the doing of complete, essential, and perfect justice between all the parties, without regard to form, and its object is the prevention of injustice." (Emphasis supplied; citations and punctuation omitted.) Davis, 241 Ga. at 439. In this case, the trial court simply enforced Washington Mutual's foreclosure sale, which thereby extinguished any interest held by Secured Equity. Other solutions are available that preserve the subrogee's and the purchaser's interests."

Like what "other solutions?" That sounds like opening Pandora's Box in the already slippery world of equtiable subrogation.

If a clean foreclosure in Georgia is akin to a scoring a touchdown in football. Equitable Subrogation is the yellow flag penalty for offside; they call back the touchdown.

Remand is a year of video review.

Unless the Georgia Supreme Court weighs in on this dispute, expect the coming foreclosure litigation to become more (not less) muddy.

Hugh Wood, Atlanta, Georgia

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Case Number:
A08A0376

Style:
SECURED EQUITY V. WASHINGTON MUTUAL

Judge:
HON. BESONETTA TIPTON LANE

County:
FULTON

ATTORNEY INFORMATION
Appellant
Mr. David E. Allman

Appellee
Ms. Dana Garrett Diment

Appellee
Ms. Stephanie A. Ziegelasch


SUPREME COURT INFORMATION
Notice of Intent
July 31, 2008

Application Date
August 13, 2008

Certiorari SC Case #
S08C2028

SECURED EQUITY FINANCIAL, LLC et al
v.
WASHINGTON MUTUAL BANK, F. A.
No. A08A0376
Court of Appeals of Georgia, Fourth Division
June 23, 2008
SMITH, P. J., MIKELL and ADAMS, JJ.
Adams, Judge.
The trial court granted summary judgment in favor of Washington Mutual Bank, F. A. by applying the doctrine of equitable subrogation to a dispute between Washington Mutual and another lender, Secured Equity Financial, LLC and a related party, who now appeal. The trial court concluded the undisputed facts justify the conclusion that, at the time it acquired a security interest in the property, Secured Equity was on constructive notice of a possible claim of equitable subrogation and that, therefore, its security interest was extinguished. For the reasons that follow, we reverse.
Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9-11-56 (c). We review a grant or denial of summary judgment de novo and construe the evidence in the light most favorable to the nonmovant. Home Builders Assn. of Savannah v. Chatham County, 276 Ga. 243, 245 (1) (577 S.E.2d 564) (2003).[1]
Construed in favor of the appellants, the record shows that in September 2000, Michael and Melanie Busby purchased property in Paulding County using a $102,550 purchase money loan secured by a deed to secure debt (the "original security deed"). On October 12, 2001, the Busbys obtained a home equity loan of $17,000 from Bank One secured by a second priority security deed; the deed states that it "may be secondary and inferior to the lien securing payment of an existing obligation [with] a current principal balance of approximately $101,000."
Although Bank One filed its security deed on October 25, 2001, the document was not recorded until January 18, 2002 because of internal delays at the courthouse. In the interim, on December 21, 2001, the Busbys refinanced the original loan, borrowing $107,264 from Franklin American Mortgage Co. to pay off the original loan balance of $102,663.44, and entering into a new security deed (the "refinance security deed"), intending to give Franklin a first priority security interest in the property. On January 4, 2002, Franklin assigned the note and the refinance security deed to a predecessor of appellee Washington Mutual. The original security deed was cancelled of record in March 2002.
In early 2004, the Busbys defaulted on both loans, causing both Washington Mutual and Bank One to initiate foreclosure proceedings. Those proceedings were delayed for several months because the Busbys filed for bankruptcy protection. Michael Schak of Fastback Home Solutions, LLC eventually saw a notice of Bank One's foreclosure, but he claims not to have seen Washington Mutual's similar notice on the same property. Schak informed business associate Matt Crowley of Secured Equity.[2] On July 27, 2004, Bank One accepted Secured Equity's offer to purchase the security deed; the price was set at $12,422.35.
Crowley relied in part on Bank One and its attorney Heath Williams who, in turn, relied on a title examination of the property obtained on behalf of Bank One for the conclusion that the Bank One deed was superior to the Washington Mutual deed. Crowley saw a one-page synopsis of the title examination dated August 24, 2004 that listed the Washington Mutual security deed as a subordinate lien. Crowley also relied on Schak, who had researched the title to the property and seen both security deeds. Because the original deed had been paid off, Schak concluded that Bank One's security deed had first priority. He also determined that the house was vacant and that it was worth between $110,000 and $120,000. He communicated this information to Crowley. On October 1, the transaction closed, and Bank One assigned to Secured Equity the note associated with the Bank One deed "without recourse," "without warranty," and with the obligation for any and all due diligence placed solely upon Secured Equity.
On November 2, 2004, unbeknownst to each other, both Washington Mutual and Secured Equity held a foreclosure sale on the same courthouse steps, and each purchased their respective deeds for the value of their outstanding loan.[3] The Secured Equity deed under power was issued subject to "any Security Deeds, liens, and encumbrances existing when the above-described Security Deed was filed for record." Secured Equity filed its deed under power on November 22, 2004; Washington Mutual filed its deed under power on December 7, 2004. On December 27, Secured Equity then transferred the Bank One Deed to Fastback, which intends to sell the property and split the profits with Secured Equity.
Washington Mutual filed suit seeking any one of five alternative remedies: (1) a declaratory judgment stating that it held the senior security interest in the amount of $102,663.44; that Secured Equity's security interest was extinguished by Washington Mutual's foreclosure; and that the real estate records be reformed accordingly; (2) a declaratory judgment that Secured Equity's foreclosure and the subsequent sale to Fastback be set aside; and that Secured Equity's interest was extinguished by Washington Mutual's foreclosure sale; (3) a declaration that the parties be restored to their status quo before the foreclosure sales with Washington Mutual holding the senior interest; (4) a judgment for wrongful foreclosure; or (5) a judgment for unjust enrichment. Washington Mutual also sought a temporary restraining order to prevent Fastback from further transfer or sale of the property, but the trial court denied the motion. On cross-motions for summary judgment, the trial court granted Washington Mutual's motion and denied Secured Equity's motion. Although the refinance security deed was executed after the Bank One deed, the trial court held that Washington Mutual's interest should be considered prior under the doctrine of equitable subrogation. But the trial court concluded, "[Washington Mutual] holds the senior security interest under the doctrine of equitable subrogation, which interest has extinguished the interest of [Secured Equity and Fastback]."
Equitable subrogation means that "in certain circumstances, a lender who pays off the lien of a senior creditor may step into the shoes of the senior creditor as to the priority of the senior creditor's lien. [Cit.]" Greer v. Provident Bank, 282 Ga.App. 566, 568 (639 S.E.2d 377) (2006). The Supreme Court set out the complete rule in Davis v. Johnson:
Where one advances money to pay off an encumbrance on realty either at the instance of the owner of the property or the holder of the encumbrance, either upon the express understanding or under circumstances under which an understanding will be implied that the advance made is to be secured by the senior lien on the property, in the event the new security is for any reason not a first lien on the property, the holder of the security, if not chargeable with culpable or inexcusable neglect, will be subrogated to the rights of the prior encumbrancer under the security held by him, unless the superior or equal equity of others would be prejudiced thereby. . . .
(Citations and punctuation omitted.) 241 Ga. 436, 438 (246 S.E.2d 297) (1978). See also OCGA § 10-7-56 ("A surety who has paid the debt of his principal shall be subrogated, both at law and in equity, to all the rights of the creditor and. . . shall rank in dignity the same as the creditor whose claim he paid."). The typical remedy is that equity will set aside a cancellation of the original security and revive it "for the benefit of the party who paid it off." Davis, 241 Ga. at 438.
Washington Mutual meets the prima facie requirements for equitable subrogation. It paid off an encumbrance pursuant to an agreement that it would stand in the same position as the prior encumbrancer. Also, even though Bank One had properly filed its security deed, which provided constructive notice to all the world,[4] equitable subrogation applies even where the successor in interest has knowledge of the intervening lien:
knowledge of the existence of an intervening encumbrance will not alone prevent the person advancing the money to pay off the senior encumbrance from claiming the right of subrogation where the exercise of such right will not in any substantial way prejudice the rights of the intervening encumbrancer. . . .
Davis, 241 Ga. at 438, and compare n. 1 (actual notice in the absence of an agreement to subrogate may show intent to give priority to the intervening lien). But as seen above, equitable subrogation may be denied (a) if the party claiming equitable subrogation is guilty of culpable or inexcusable neglect, (b) if the superior or equal equity of others would be prejudiced, or (c) if the exercise of the right of subrogation will in a substantial way prejudice the intervening lienholder's rights. Greer, 282 Ga.App. at 569. Secured Equity contends there are issues of fact on each of these points.
(a) In this context, "inexcusable neglect" can be seen as the plaintiff's failure to "avail itself of the proper legal remedy when it had the chance." See, e.g., Bankers Trust Co. v. Hardy, 281 Ga. 561 (640 S.E.2d 18) (2007) (party seeking subrogation failed to include mortgagee's son in loan transaction, even though son had an interest in property), citing Bank of Danielsville v. Seagraves, 167 Ga.App. 135, 142 (305 S.E.2d 790) (1983). Secured Equity cites evidence suggesting that Washington Mutual discovered the Bank One lien two weeks prior to the foreclosures yet failed to contact Secured Equity at that time to try to resolve the matter. But Secured Equity has not shown that the document, an exhibit to a deposition, was authenticated, and the deponent denied any knowledge about it. Therefore "it was merely inadmissible hearsay that could not be considered as evidence in support of the motion for summary judgment." Valentin v. Six Flags Over Georgia, L.P., 286 Ga.App. 508, 511 (649 S.E.2d 809) (2007). And "[i]t is well settled that this Court will not cull the record. . . on an appellant's behalf." Carlisle v. Abend, 288 Ga.App. 150, 151 (1) (653 S.E.2d 388) (2007). Secured Equity also argues that Washington Mutual should have conducted a post-closing title exam, which could have revealed the existence of the subsequent lien. However, Secured Equity has not cited any law to support such an obligation as a prerequisite to equitable subrogation, and we find none.
(b) Secured Equity contends that application of the doctrine of equitable subrogation would prejudice its "superior or equal equity" in the property. In Davis, the Court noted that the refinancing lienholder "is estopped from being reinstated to its senior status where the intervening lienholder has taken or purchased the lien in reliance upon his apparent status." Davis, 241 Ga. at 439. It is undisputed that the county records showed the Bank One security deed as having been recorded prior to the refinance security deed under which Washington Mutual claims an interest. Thus this enumeration depends on whether Secured Equity took title with constructive knowledge of Washington Mutual's position as being subrogated to the original security deed.
Constructive notice of a claim of equitable subrogation is possible. In Greer, Provident Bank loaned a consumer over $400,000 to pay off two prior mortgages on a piece of property. Greer, 282 Ga.App. at 567. Unbeknownst to Provident, the consumer had executed a deed on the same property six weeks earlier to secure a $35,950 note to Alfa Management. Id. As a result of delay in the county clerk's office, the Alfa lien was not recorded in the public records until after the Provident transaction, and thus, Provident had only constructive knowledge of the Alfa lien at the time. Id. at 567. Upon default, Alfa foreclosed on the property, and Provident sought equitable subrogation against the purchasing party. The Court rejected the argument that the purchaser was a "bona fide purchaser" because at the time of Alfa's foreclosure sale, the two original security liens were still on the record - they had never been cancelled - and the foreclosure sale was made subject to "any other open indebtedness on any prior (liens) of record." Id. at 569. And the purchaser "was aware that another lender may have satisfied the [prior] liens, and also knew it was unusual for a lender not to have satisfied the third position Alfa lien." Id. at 570. This Court held that under the circumstances, there was an issue of fact as to whether the purchaser was on constructive notice of Provident's claim of equitable subrogation. Id. at 568-569.
By contrast, in the present case the original security deed had been cancelled of record long before Secured Equity purchased Bank One's interest. Accordingly, Greer is distinguishable on this point. Here, the Bank One deed appeared to be in first priority at the time of Secured Equity's purchase.[5] Washington Mutual argues that the language of Bank One's deed put Secured Equity on notice of the possibility of an equitable subrogation claim. The Bank One deed states that it "may be secondary and inferior to the lien securing payment of an existing obligation [with] a current principal balance of approximately $101,000." But the statement is true with regard to the original security deed, which the record showed as having been cancelled. Although Willams admitted that the language "suggests that this deed might be a second mortgage," he did not admit that the language suggests that a later-in-time security deed was subrogated to the original security deed. And even though the appellants admit that it is not typical to have a $17,000 first security deed followed by a second security deed for $107,000, that does not establish as a matter of law that Secured Equity was on notice of a claim of equitable subrogation. See Leeds Bldg. Products v. Sears Mtg. Corp., 267 Ga. 300, 301 (1) (477 S.E.2d 565) (1996) ("The substance of the notice required must be sufficient to 'place a [person] of ordinary prudence fully upon his guard and induce serious inquiry.' [Cit.]").
We hold that Washington Mutual has failed to establish as a matter of undisputed fact that Secured Equity was on notice of a possible equitable subrogation claim. The trial court erred by granting summary judgment for this reason.
(c) Finally, Secured Equity argues that the trial court erred because the exercise of the right of subrogation will prejudice its rights in a substantial way. We agree that the manner in which the doctrine was exercised in this case substantially prejudiced Secured Equity's rights. "Subrogation is of equitable origin and benevolence. It is founded upon the dictates of refined justice. Its basis is the doing of complete, essential, and perfect justice between all the parties, without regard to form, and its object is the prevention of injustice." (Emphasis supplied; citations and punctuation omitted.) Davis, 241 Ga. at 439. In this case, the trial court simply enforced Washington Mutual's foreclosure sale, which thereby extinguished any interest held by Secured Equity. Other solutions are available that preserve the subrogee's and the purchaser's interests.[6] Indeed, Washington Mutual is only entitled to subrogation up to the amount of the original indebtedness that it paid, and Secured Equity would be entitled to any surplus obtained in a foreclosure sale. See East Atlanta Bank v. Limbert, 191 Ga. 486, 490 (2) (12 S.E.2d 865) (1941); Restatement (Third) of Property, § 7.6, comment e at 520 (an increase in the amount of the first priority lien may be harmful to junior lienholders).
For the above reasons, we reverse and remand for further proceedings consistent with this opinion including, if equitable subrogation is applicable, a remedy that protects the interest of both parties.
Judgment reversed and case remanded.
Smith, P. J., and Mikell, J., concur.
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Notes
[1] The appellee's brief does not conform to the rules of this Court. We remind the bar that the Rules of the Court of Appeals require that record and transcript citations must be to the volume or part of the record or transcript and the page numbers that appear on the appellate records or transcript as sent from the court below. See Rule 27.
[2] Secured Equity had made an earlier offer to purchase the Bank One deed in March that was not accepted, and that offer included an acknowledgment that "We understand this mortgage is a 2nd mortgage." But Crowley now explains that this was merely boilerplate language in a form letter that it used for every mortgage. For the purposes of summary judgment, we accept this explanation.
[3] Although Williams commenced foreclosure proceedings on behalf of Bank One, Secured Equity eventually retained Williams to handle the foreclosure on its behalf.
[4] Thompson v. Hudson, 190 Ga. 622 (10 S.E.2d 396) (1940) (recording errors by the clerk have no effect on the rights of those who have properly filed).
[5] Comments in The Restatement of Property state that where an investor purchases an intervening lien "it may not be apparent to the purchaser of the intervening interest that the priority of the old first mortgage will be preserved by subrogation." Restatement (Third) of Property, § 7.6, comment f.
[6] We note that there are alternative methods for foreclosing a second security deed. See 2 Daniel F. Hinkel, Pindar's Ga. Real Estate Law and Procedure § 21-74, p. 698 (6th ed.2004),
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& & &

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

& & &


For those who may not get the play on words, Muddy Waters, IS the father of Rock and Roll. McKinley Morganfield (born April 4, 1913, Issaquena County, Mississippi; died April 30, 1983, Westmont, Illinois), better known as Muddy Waters.

A Completed Foreclosure Bars Suit on Most Claims Against the Lender

If you are facing foreclosure in Georgia, you need to fight foreclosure in Georgia before the foreclosure is final. If you simply sit on the sidelines and allow the foreclosure to conclude, you will have waived most rights you have to challenge the foreclosure or the loan.

Sometimes folks ask me whether they can "now" (meaning after the foreclosure is over) sue the Lender in federal court. Generally, the answer is "no." One doctrine is that you cannot have two bites at the same apple – one in state court and then another one in federal court. Its called res judicata. Also, there is a completely separate federal doctrine that prevents a federal court from relitigating a case (here a completed state foreclosure) that has concluded in a state court.

The Rooker-Feldman doctrine is a rule of civil procedure enunciated by the United States Supreme Court in two cases, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). The doctrine holds that lower United States federal courts other than the Supreme Court have no subject matter jurisdiction to sit in direct review of state court decisions unless Congress has enacted legislation that specifically authorized such relief. Wiki.

If you fail to challenge the lender’s foreclosure before it goes final, you (as a borrower) will find any claim you file after the foreclosure may be barred by the doctrines of waiver and estoppel. Those are fancy ways of saying, “you have waived your right to raise them at a later date.”

While the below wrongful foreclosure case occurred in Pennsylvania, its outcome in a Georgia Federal Court would be the same.

If you want to sue your lender for mortgage violations associated with TILA, HOEPA, and RESPA, money damages or file similar claims, you, generally, need to act BEFORE the Georgia foreclosure goes final.

Hugh Wood, Atlanta, Georgia



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ANGEL J. LAYCHOCK
v.
WELLS FARGO HOME MORTGAGE, et al.
Civil Action No. 07-4478
United States District Court, Eastern District of Pennsylvania
July 23, 2008
MEMORANDUM AND ORDER
Juan R. Sanchez, J.
Wells Fargo and Wachovia move to dismiss for lack of subject matter jurisdiction under the Rooker-Feldman doctrine[1] because a federal judgment favoring Angel Laychock would negate the state's foreclosure judgment against her. Alternatively, they argue res judicata and the statute of limitations bar Laychock's claims. Laychock contends neither Rooker-Feldman nor res judicata apply because her state mortgage foreclosure action neither addressed nor decided this lawsuit's claims for liability damages. She further asserts equitable tolling prevents the Court from applying the statute of limitations. Because Rooker-Feldman, res judicata, and the statute of limitations apply, I will grant the Defendants' motion to dismiss.
FACTS
In June 2006, Laychock alleges she signed up for Wachovia's automatic bi-weekly payments to pay her mortgage. Three months later, Wells Fargo, the mortgagee, allegedly without Laychock's authorization also began withdrawing bi-weekly payments from Laychock's Wachovia bank account. In December 2006, Laychock discovered Wells Fargo's allegedly unauthorized withdrawals, which led to incurring insufficient funds and late fees.
After Laychock's discovery, Wells Fargo informed her it would investigate and reversed three out of the seven duplicative payments. Wells Fargo then notified Laychock it informed the credit reporting agencies of its erroneous credit reports.
About seven months later in July 2007, Wachovia filed a foreclosure in Philadelphia Court of Common Pleas against Laychock. In its foreclosure complaint, Wachovia, as a trustee for Wells Fargo, alleged Laychock had failed to pay her monthly payment since April 1, 2007. Wachovia alleged Laychock owed $120,493.72 on the mortgage. Wachovia also alleged it was not seeking a judgment of personal liability, but only sought to "foreclose the mortgage and sell the mortgaged premises." Wachovia's Foreclosure Compl.
On October 12,2007, Laychock petitioned the Philadelphia Court of Common Pleas to open the default judgment. In this petition, Laychock asserted different defenses including "[Wells Fargo and Wachovia] double-debited Plaintiffs auto-pay account causing Plaintiffs short-fall and then foreclosed while contemporaneously giving Plaintiff credit for the same." Laychock's Pet. to Open Def J. ¶ 21. In her proposed answer, Laychock also stated the "mortgage is rescindable pursuant to [Wells Fargo and Wachovia]'s truth-in-lending violations." Laychock's Proposed Ans.¶5.
On October 25, 2007, before receiving the decision on her petition to open, Laychock filed this federal lawsuit against Wells Fargo and Wachovia for "predatory lending" unfair and deceptive acts and practices, wrongful foreclosure, and conspiracy and/or aiding and abetting. In this federal lawsuit, Laychock alleges Well Fargo and Wachovia double-debited her account for the monthly mortgage payments and filed a wrongful foreclosure against her. She alleges their conduct resulted in 14 state and federal violations: wrongful use of civil proceedings; abuse of process; breach of contract; two counts of negligence; fraud/fraud on the court; Unfair Trade Practices Consumer Protection Law (UTCPL); Truth In Lending Act (TILA); Home Ownership Equity Protection Act (HOEPA); Real Estate Settlement Practices Act (RESPA); Fair Credit Reporting Act (FCRA); Fair Credit Extension Uniformity Act (FCEUA); Civil Rights (Section 1983); and Slander of Title.[2] Judge Gary F. DiVito in the Philadelphia Court of Common Pleas reviewed Laychock's petition to open, Wells Fargo and Wachovia's answer, and denied Laychock' s petition on November 28,2007.
DISCUSSION
Under Rooker-Feldman, I must discuss what the state court decided and how Laychock's current claims and proposed relief will affect the state court decision. I conclude 11 of Laychock's claims along with her request for recision will require I find the state court was wrong in its foreclosure, so Rooker Feldman applies and I lack jurisdiction. Alternatively, res judicata also precludes these claims. The statue of limitations bars the TILA, HOEPA, and RESPA monetary claims.
Federal courts are courts of limited jurisdiction. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). When considering a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of persuading the Court subject matter jurisdiction exists. Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991). The court "may not presume the truthfulness of plaintiff s allegations, but rather must evaluate for itself the merits of the jurisdictional claims." Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005) (brackets omitted).
The Rooker-Feldman Doctrine "prevents 'inferior' federal courts from sitting as appellate courts for state court judgments." In re Knapper, 407 F.3d 573, 580 (3d Cir. 2005). Rooker-Feldman applies when: (1) "the federal claim was actually litigated in state court prior to the filing of the federal action" or (2) "if the federal claim is inextricably intertwined with the state adjudication." Id. A federal and state case are "inextricably intertwined" when "the federal court must take an action that would negate the state court's judgment" or when the plaintiff s sought relief "would prevent a state court from enforcing its orders." Id. at 581. "If the relief requested in the federal action requires determining that the state court's decision is wrong or would void the state court's ruling, then the issues are inextricably intertwined and the district court has no subject matter jurisdiction to hear the suit." ITT Corp. v. Intelnet Intern., 366 F.3d 205, 211 (3d Cir. 2004) (citing FOCUS, 75 F.3d at 840 (quoting Charchenko v. City of Stillwater, 47F .3d 981, 983 (8th Cir. 1995)). "The doctrine applies only when a plaintiff asks a district court to redress an injury caused by the state court judgment itself - not when a plaintiff merely seeks to relitigate a claim or issue already litigated in state court." Moncrief v. Chase Manhattan Mortg. Corp., 2008 WL 1813161, at * 2 (3d Cir. Apr. 3, 2008) (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 292-93 (2005)) (emphasis added).
In deciding whether a claim is "inextricably intertwined," courts must determine "exactly what the state court held." FOCUS v. Allegheny County Court of Common Pleas, 75 F.3d 834, 840 (3d Cir. 1996) (citing Charchenko v. City of Stillwater, 47 F.3d 981, 983 (8th Cir.1995) (citations omitted)). Then, courts must examine the sought federal relief. Id. If this relief "requires determining that the state court decision is wrong or would void the state court's ruling," then the issues are inextricably intertwined and the court lacks jurisdiction. Id.
In Laychock's case, the Philadelphia Court of Common Pleas entered default foreclosure judgment against her and subsequently, denied her petition to open this default judgment. In Pennsylvania, a foreclosure judgment against the mortgagor means "the mortgage is in default, that [the mortgagors] have failed to pay interest on the obligation, and that the recorded mortgage is in the specified amount." Cunningham v. McWilliams, 714 A.2d 1054, 1056-57 (Pa. Super. 1998) (citing Landau v. Western Pennsylvania National Bank, 445 Pa. 217, 225-26, 282 A.2d 335, 340 (1971) (discussing burden mortgagee must prove in summary judgement motion)); Pa. Civ. R. P. 1147.[3] A mortgage foreclosure also depends "upon the existence of a valid mortgage." In re Randall, 358 B.R. 145, 158 (Bkrtcy. E.D. Pa. 2006). Thus, in the default foreclosure judgment against her, the Philadelphia Court of Common Pleas decided Laychock had not paid her monthly payments since April 1, 2007 and her recorded valid mortgage was rightfully for $120,493.72. Judge DiVito denied Laychock's petition to open the default judgment. The denial rejected Laychock's assertions Wachovia and Wells Fargo allegedly double debited Laychock's bank account and allegedly violated TEA. This denial affirmed the Philadelphia Court of Common Pleas' default mortgage foreclosure judgment against Laychock, finding she had failed to make her monthly mortgage payments and was in default.
In her federal lawsuit, Laychock seeks monetary damages for Wachovia and Wells Fargo allegedly double-debiting her account and filing a wrongful foreclosure against her. This misconduct underlies her claims of wrongful use of civil proceedings; abuse of process; breach of contract; negligence; fraud/fraud on the court; UTPCPL; FCRA; FCEUA; Section 1983; and Slander of Title.[4] In other words, Laychock alleges she made her monthly mortgage payments and Wachovia and Wells Fargo wrongly initiated the state foreclosure suit. She also seeks monetary damages and rescission of her mortgage based on violations of TILA, HOEPA, and RESPA.
All her claims for monetary damages, except for TILA, HOEPA, and RESPA, would require me to decide Wells Fargo and Wachovia wrongfully double-debited her account and initiated a wrongful foreclosure against her. Such a decision requires me to find the Philadelphia Court of Common Pleas Judge's decision, Laychock failed to make her monthly mortgage payments, was wrong. Moncrief v. Chase Manhattan Mortg. Corp., 2008 WL 1813161, at * 1-2 (3d Cir. Apr. 3, 2008) (finding Rooker Feldman precluded former home owner's case to the extent it sough redress from state foreclosure judgment). A federal judgment in Laychock' s favor would also invalidate the Philadelphia Court of Common Pleas Judge's denial of the petition to open based on alleged double-debiting and wrongful foreclosure. Her sought relief for rescission would also invalidate the state default judgment. In re Faust, 353 B.R. 94, 103 (Bankr. E.D. Pa. 2006).
Laychock contends she should be allowed to proceed with all of her claims because Pennsylvania law precludes her and other defendants in mortgage foreclosure proceedings from asserting recoupment or allegations for personal liability damages. Pa. R. Civ. P. 1141; see Overly v. Kass, 382 Pa. Super. 108, 113-15, 554 A.2d 970, 973-74 (1989) (precluding Wells Fargo and Wachovia from seeking a set-off for misrepresentations about the condition of the property), Chrysler First Business Credit Corp. v. Gourniak, 411 Pa. Super. 259, 267, 601 A.2d 338, 342 (1992) (precluding defenses relating to misrepresentation in the inducement to purchase of the property). A mortgage foreclosure proceeding permits only counterclaims "directly related to the transaction or occurrence out of which the mortgage arose. . . ." Pa. R. Civ. P. 1148; Indymac Bank F.S.B. v. Vicuna, 83 Pa. D. & C.4th 129, 132 -133 (Pa. Com. PI. 2007). Counterclaims or defenses regarding the mortgage itself, however, are permitted. Vicuna, 83 Pa. D. & C.4th at 133 (permitting counterclaim and defense of fraud in the inducement of the mortgage itself).
Laychock's allegations of double-debiting and illegal foreclosure would fit as defenses to the mortgage default. See id.; Moncrief, 2008 WL 183161 at *2. Through her claims, Laychock requests a federal fact-finder to decide Wells Fargo and Wachovia inappropriately debited her account and wrongfully foreclosed on her property. Such a decision would negate the state court's judgment, which decided in favor of Wells Fargo and Wachovia. Laychock brought these allegations as defenses in her petition to open the default. Judge DiVito rejected these arguments. Laychock could also raise these defenses and arguments on appeal of the default judgment and petition to open. See Andrew v. Ivanhoe Financial, Inc., 2008 WL 2265287, at * 8 (E.D. Pa. May 30, 2008) (instructing plaintiff to seek relief by petitioning under Pa R. Civ. P. 237.3). Alternatively, res judicata also precludes these claims as they are an attempt to relitigate the state foreclosure.[5]
Rooker-Feldman precludes 11 of Laychock's 14 claims. The first claim barred by Rooker-Feldman is slander of title. To prevail on slander or disparagement of title, Laychock must prove Wachovia and Wells Fargo falsely and maliciously represented "the title or quality of another's interest in goods or property." Pro Golf Mfg., Inc. v. Tribune Review Newspaper Co., 809 A.2d 243, 246 (Pa. 2002). She alleges Wells Fargo and Wachovia "slandered Laychock's then title and rights to the premises." Compl. ¶ 68. The Philadelphia Court of Common Pleas default mortgage foreclosure judgment against Laychock held Laychock had failed to make her mortgage payment for three months. I would have to invalidate the state default judgment in order to rule Wells Fargo and Wachovia "maliciously represented" her interest in her property.
Laychock's FCRA[6] and FCEUA[7] are the next two claims barred by Rooker-Feldman. Laychock alleges Wachovia and Wells Fargo violated these laws by reporting her mortgage foreclosure. Both claims require a finding Wachovia and Wells Fargo wrongfully reported the mortgage foreclosure. See Crane v. American Home Mortgage, Corp., 2004 WL 1529165, at * 5 (E.D. Pa. July 7, 2004) (citing 15 U.S.C. § 1681a(k)(l)(B)(iv) (defining adverse action for FCRA); 77 Pa.C.S. § 2270.3 (stating FCEUA prohibits oppressive and harassing behavior on behalf of the creditors).[8] Finding Wachovia and Wells Fargo wrongfully reported this would mean the foreclosure, and the state judgment, was incorrect.
The next three claims, wrongful use of civil proceedings, abuse of process, and fraud/fraud on the court assert an abuse of legal proceedings. Wrongful use of civil proceedings and abuse of process require Laychock to prove Wells Fargo and Wachovia initiated a baseless claim against her. See 42 Pa.C.S.A. § 8351; D'Etta v. Folino, 933 A.2d 117, 121 (Pa. Super. 2007) (requiring plaintiff to prove "(a) initial lawsuit was brought in grossly negligent manner or without probable cause and for purpose other than discovery, joinder, or adjudication; and (b) proceedings have terminated in favor of person against whom they were commenced" to prevail in wrongful use of civil proceedings claim); Werner v. Plater-Zyberk, 799 A.2d 776, 785 (Pa. Super. 2002) (holding an abuse of process requires: a legal process against plaintiff; [p]rimarily to accomplish a purpose for which the process was not designed; [h]arm has been caused to the plaintiff").
To show a fraud on the court, Laychock would have to show the Defendants committed fraud upon the court by filing the state foreclosure. Pittsburgh Live, Inc. v. Servov, 419 Pa. Super. 423, 429, 615 A.2d 438, 441 (1992) (listing prevailing burden for fraud as a "(1) a misrepresentation, (2) a fraudulent utterance thereof, (3) an intention by the maker that the recipient will thereby be induced to act, (4) justifiable reliance by the recipient upon the misrepresentation, and (5) damage to the recipient as the proximate result"). For Laychock to prevail on these claims, I would have to find Wells Fargo and Wachovia wrongfully withdrew more automatic payments from her account than permitted and then maliciously filed a baseless foreclosure against her. This finding would negate the state court's judgment Laychock had defaulted in her judgment and Wachovia Wells Fargo rightfully initiated the foreclosure proceedings, in violation of Rooker-Feldman.
Laychock's seventh claim is a Civil Rights - Section 1983 claim. Section 1983 "establishes a federal remedy against a person who, acting under color of state law, deprives another of constitutional rights." Burella v. City of Philadelphia, 501 F.3d 134, 139 (3d Cir. 2007) (internal quotation marks and citation omitted). To prevail in this claim, Laychock must prove (1) Wachovia and Wells Fargo deprived her of a federal right (2) while acting under color of state law. Id. She alleges Wells Fargo and Wachovia used the "Prothonotary, Sheriff, and the Court of Common Pleas" to initiate the illegal foreclosure, depriving her of her First, Fourth, and Fourteenth amendment rights. Compl. ¶¶ 65-66. Laychock's constitutional deprivation depends on a finding the foreclosure was illegal. Such a finding requires deciding the state court was wrong in entering the default mortgage foreclosure. In re Knapper, 40 F.3d at 581 (finding Rooker-Feldman precluded Knapper's due process attack on her state foreclosure judgment because federal relief would rely on a finding the state court default judgment was "improperly obtained.").
Rooker Feldman also bars Laychock's one breach of contract and two negligence claims. For Laychock to establish breach of contract and negligence claims, she must show Wells Fargo and Wachovia breached a term of the contract and/or a duty. See Ware v. Rodale Press, Inc., 322 F.3d 218, 225 (3d Cir. 2003) (as cited in Sampathachar v. Federal Kemper Life Assur. Co., 186 Fed. Appx. 227, 230 (3d Cir. 2006) (listing contract prima facie as "(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract[,] and (3) resultant damages."); Jones v. Levin, 940 A.2d 451, 454 (Pa. Super. 2007) (citations omitted) (listing negligence elements as: 1) a duty or obligation recognized by law; 2) a breach of that duty; 3) causation between the breach and the resulting injury; and 4) actual loss or damage suffered by complainant). To prove these breaches, she alleges Wells Fargo and Wachovia wrongfully withdrew automatic payments from her account and then illegally filed a foreclosure against her. To find Wells Fargo and Wachovia breached their duties, I would have to find Laychock made her monthly payments and the state default foreclosure judgment against her was wrong. Rooker Feldman precludes this.
The eleventh claim precluded by Rooker-Feldman is the UTCPL. Under UTCPL, Laychock must prove Wachovia and Wells Fargo "engag[ed] in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding." 73 P.S. § 201-2. She alleges Wells Fargo and Wachovia' conduct "surrounding the mortgage, servicing and underlying complaint falls within the [UTCPL]." Compl. ¶ 44. To find Wells Fargo and Wachovia engaged in fraudulent or deceptive conduct, I would have to find they wrongfully withdrew money from her account and wrongfully initiated the foreclosure proceedings.
Laychock also asks me to both rescind the mortgage and award her monetary damages for disclosure violations under TILA,[9] HOEPA,[10] and RESPA.[11] "Courts in this district have, in fact, consistently drawn such a distinction, holding that claims for recision or other relief calling a Debtor's mortgage itself into question may not proceed pursuant to Rooker-Feldman, but claims for damages may go forward following a state court foreclosure judgment." In re Reagoso, 2007 WL 1655376, at * 1 -4 (Bkrtcy. E.D. Pa. 2007). Thus, Laychock's claims requesting rescission are precluded because rescinding the mortgage would invalidate the state court's default mortgage foreclosure judgment. To prove her claims for monetary relief under TILA, HOEPA, and RESPA, she alleges Wells Fargo and Wachovia failed to provide the appropriate disclosures during closing. A finding she did not receive appropriate disclosures would not require me to find the state court was wrong in entering the default judgment. Such a finding does not dispute the validity of the state court's mortgage foreclosure or of whether Laychock made her monthly mortgage payments. Thus, Rooker-Feldman precludes her TILA, HOEPA, and RESPA claims to the extent they request rescission, but it does not preclude these claims to the extent they request monetary damages. In re Randall, 358 B.R. 145, 157 (Bkrtcy. E.D. Pa. 2006) (finding Rooker-Feldman does not preclude monetary damages because " a set-off for an alleged violation of the Truth-in-Lending Act cannot be asserted as a counter-claim in a mortgage foreclosure action"). The statute of limitations, however, does bar these monetary claims.
The statute of limitations is an affirmative defense that can be raised on a 12(b)(6) motion to dismiss "if the defect appears on the face of the pleading." In re Faust 353 B.R. 94, 101-02 (Bkrtcy. E.D. Pa. 2006) (citing Brody v. Hankin, 299 F.Supp.2d 454, 458 (E.D. Pa. 2004), rev'd on other grounds 145 Fed. Appx. 768 (3d Cir. 2005)). A 12(b)(6) motion to dismiss admits the complaint's well pleaded allegations, but denies their legal sufficiency. Hospital Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738, 740 (1976); T.R. Ashe, Inc. v. Bolus, 34 F.Supp.2d 272, 274-75 (M.D. Pa. 1999). The complaint and every doubt is resolved in the plaintiffs favor. In re Arthur Treacher's Franchise Litigation, 92 FR.D. 398,422 (E.D. Pa. 1981). The court must accept the complaint's factual allegations as true, as well as all its reasonable inferences. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). "[A] case should not be dismissed unless it clearly appears that no relief can be granted under any set of facts that could be proved consistently with the plaintiffs allegations." Id. (citing Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)). Only the complaint's allegations, matters of public record, orders, and exhibits attached to the complaint are considered. Chester County Intermediate Unit v. Pennsylvania Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990). Courts must allow plaintiffs to amend unless amendment would be "inequitable or futile." Phillips v. County of Allegheny, 515 F.3d 224,236 (3d Cir. 2008) (citing Grayson v. Mayview State Hosp., 293 F.3d 103, 108(3dCir.2002)).
The statute of limitations also applies and bars Laychock's remaining TILA, HOEPA, and RESPA claims for monetary damages. TILA and HOEPA, have a one-year statute of limitations for monetary damages. 15 U.S.C. § 1640(e) (stating the one-year statute of limitations); In re Community Bank of Northern Virginia, 418 F.3d 277, 304 -305 (3d Cir. 2005) (citing to 15 U.S.C. § 1640(e) for one year statue of limitations). RESPA has a one-year statute of limitation for fee splitting and a three-year statute of limitation for a defective response. 12 U.S.C. A. § 2614. The statute of limitations begins to run when "the cause of action accrues." Oshiver v. Levin, Fishbein Sedran & Berman, 38 F.3d 1380, 1385 (3d Cir. 1994).
Here, Laychock' s violations occurred at her 2002 closing. She filed the TILA, HOEPA, and RESPA allegations in 2007, long after both the expiring one and three year limitations. The statute of limitations bars these complaints.
Laychock's contention equitable tolling precludes dismissal fails. Equitable tolling applies: (1) where the defendant actively misleads the plaintiff about his/her cause of action (fraudulent concealment); (2) where some extraordinary circumstance prevents the plaintiff from asserting his/her rights; or (3) where the plaintiff has timely asserted his/her rights, but in the wrong forum. Oshiver, 38 F.3d at 1387; Wise v. Mortgage Lenders Network USA Inc., 420 F.Supp.2d 389, 393-94 (E.D. Pa. 2006). Here, Laychock would have to rely on the first option of fraudulent concealment. Andrew, 2008 WL 2265287 at *4. To satisfy this option, Laychock's allegation of fraudulent concealment must also satisfy Federal Rule of Civil Procedure 9(b)'s requirements of specificity. Id.; Lum v. Bank of America, 361 F.3d 217, 223-24 (3d Cir.2004) (requiring a fraud allegation to specify "who made a misrepresentation to whom and the general content of the misrepresentation" in order to notify the defendants of the exact misconduct alleged); Wise v. Mortgage Lenders Network USA Inc., 420 F.Supp.2d 389, 394 (E.D. Pa. 2006) (making specific allegations of fraud and defendants actively and intentionally misleading them). Instead of specific allegations, Laychock makes conclusory allegations of conspiracy and deceptive practices. Andrew, 2008 WL 2265287 at * 5 (holding Andrew and Andrew's attorney, who is also Laychock's attorney, needed to plead fraud specifically for equitable tolling to apply). Equitable tolling fails to apply to Laychock's TILA, HOEPA, and RESPA claims, and the statute of limitations bars them.
In conclusion, Rooker-Feldman and res judicata bar Laychock's claims attempting to challenge and relitigate the state default foreclosure judgment against her. Rooker Feldman also bars her request for rescission under TILA, HOEPA, and RESPA, but not her request for monetary damages. The statute of limitations, however, does bar Laychock's these request for monetary damages under TILA, HOEPA, and RESPA.
An appropriate order so follows.
ORDER
AND NOW, this 23rd day of July, 2008, Defendants' 12(b)(6) Motion to Dismiss (Document 13) is GRANTED. Judgment is entered in favor of Defendants Wells Fargo and Wachovia, and against Angel J. Laychock.
The Clerk of Court is directed to mark the above-captioned case CLOSED.
---------
Notes:
[1] Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1976).
[2] During the hearing for the motion to dismiss, Laychock withdrew her claim for ECOA, 15 U.S.C. § 1691(f).
[3] Pennsylvania's Foreclosure Complaint must state the following:
(1) the parties to and the date of the mortgage, and of any assignments, and a statement of the place of record of the mortgage and assignments;
(2) a description of the land subject to the mortgage;
(3) the names, addresses and interest of the Defendants in the action and that the present real owner is unknown if the real owner is not made a party;
(4) a specific averment of default;
(5) an itemized statement of the amount due; and
(6) a demand for judgment for the amount due.
Note: The plaintiff may also set forth in the complaint a release of the mortgagor and the mortgagor's successors in interest. See Rule 1144(b).
If the mortgage is a residential mortgage under Act No. 6 of 1974, 41 P.S. § 101, the complaint should set forth an averment of compliance with the provisions of Section 403 of Act No. 6, 41 P.S. §403.
(b) If the plaintiff is proceeding against both personal and real property covered by a mortgage as provided by Section 9604(a) of the Uniform Commercial Code, the plaintiff shall set forth in the complaint
(1) the matters required by subdivision (a), and
(2) a description of the personal property subject to the mortgage.
Pa. R. Civ. P. 1147
[4] Laychock also had punitive damages as a claim for relief. Because none of the claims survive, Laychock's claim for punitive damages is also dismissed.
[5] Res judicata is an affirmative defenses that can be raised on a 12(b)(6) motion to dismiss "if the defect appears on the face of the pleading." In re Faust 353 B.R. 94, 101-02 (Bkrtcy. E.D. Pa. 2006) (citing Brody v. Hankin, 299 F.Supp.2d 454, 458 (E.D. Pa. 2004), rev'don other grounds 145 Fed. Appx. 768 (3d Cir. 2005)). A 12(b)(6) motion to dismiss admits the complaint's well pleaded allegations, but denies their legal sufficiency. Hospital Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738, 740 (1976); T.R. Ashe, Inc. v. Bolus, 34 F.Supp.2d 272, 274-75 (M.D. Pa. 1999). The complaint and every doubt is resolved in the plaintiffs favor. In re Arthur Treacher's Franchise Litigation, 92 F.R.D. 398, 422 (E.D. Pa. 1981). The court must accept the complaint's factual allegations as true, as well as all its reasonable inferences. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). "[A] case should not be dismissed unless it clearly appears that no relief can be granted under any set of facts that could be proved consistently with the plaintiffs allegations." Id. (citing Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)). Only the complaint's allegations, matters of public record, orders, and exhibits attached to the complaint are considered. Chester County Intermediate Unit v. Pennsylvania Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990). Courts must allow plaintiffs to amend unless amendment would be "inequitable or futile." Phillips v. County of Allegheny, 515 F.3d 224, 236 (3d Cir. 2008) (citing Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir.2002)).
To prevail on res judicata, Wells Fargo and Wachovia must prove: (1) whether the acts complained of and the demand for relief are the same (that is, whether the wrong for which redress is sought is the same in both actions); (2) whether the theory of recovery is the same; (3) whether the witnesses and documents necessary at trial are the same (that is, whether the same evidence necessary to maintain the second action would have been sufficient to support the first); and (4) whether the material facts alleged are the same. O 'Leary v. Liberty Mut. Ins. Co., 923 F.2d 1062, 1065 (3d Cir. 1991) (internal citations omitted). Asserting different laws, statutes, or theories of recovery will not by itself preclude application of res judicata. United States v. Athlone Industries, Inc., 746 F.2d 977, 984 (3d Cir. 1984) (citations omitted). "Rather than resting on the specific legal theory invoked, res judicata generally is thought to turn on the essential similarity of the underlying events giving rise to the various legal claims ... ." Id. at 983-84 (3d Cir. 1984) (citing Davis, 688 F.2d at 171). The Pennsylvania Supreme Court has explained res judicata moves to preclude "a second trial on the same cause between the same parties." Hochman v. Mortgage Fin. Corp., 289 Pa. 260, 263, 137 A. 252, 253 (1927). The court considers "whether the ultimate and controlling issues have been decided in a prior proceeding in which the present parties actually had an opportunity to appear and assert their rights." Id.
Res judicata has precluded others like Laychock, who are attempting to relitigate the legitimacy of foreclosures. Moncrief 2008 WL 183161, at * 2 (finding res judicata precluded disputes regarding the mortgage amount). In Moncrief the Third Circuit found res judicata precluded Moncrief s claims against the legality of her previous state foreclosure judgment "claims regarding the legality of the foreclosure are predicated on the same underlying transaction (the mortgage agreement) that was the basis of the foreclosure action." Id. (citing Athlone, 746 F.2d at 983-84). Like Moncrief all of Laychock's claims dispute the legitimacy of the underlying mortgage. Id. Res judicata also precludes Laychock's claims. Id.
[6] Fair Credit Reporting Act, 15 U.S.C. § 1681.
[7] Fair Credit Extension Uniformity Act, 77 Pa.C.S. § 2270.3.
[8] The Fair Credit Extension Uniformity Act states:
(b) By creditors.-With respect to debt collection activities of creditors in this Commonwealth, it shall constitute an unfair or deceptive debt collection act or practice under this act if a creditor violates any of the following provisions:
(4) A creditor may not engage in any conduct the natural consequence of which is to harass, oppress or abuse any person in connection with the collection of a debt. Without limiting the general application of the foregoing, the following conduct is a violation of this paragraph:
(5) A creditor may not use any false, deceptive or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this paragraph:
73 P.S. § 2270.4.
[9] Truth in Lending Act, 15 U.S.C.A. §§ 1691 et seq.
[10] Home Ownership Equity Protection Act, 15 U.S.C.A. §§ 1602(aa), 1610, 1639, 1640.
[11] Real Estate Settlement Practices Act, 12 U.S.C.A. § 2614.


& & &

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

& & &

The Coming Boom in Georgia Tax Sales

When mortgages don't get paid, the bank does not pay the County property tax. When borrowers are delinquent on the mortgage, they never pay just the property taxes and let the mortgage go.

Once the property taxes have remain unpaid for about a year (it varies from County to County and they do not follow any statewide timeframe), the properties are posted for tax sale. The properties are sold by the County on the first Tuesday of every month starting at 10:00 a.m. The County's opening bid is just the unpaid tax. That is, if the home is worth $200,000, but the unpaid taxes are $4,000, the opening bid is $4,000.

The mortgage banker's association is reporting that delinquent mortgages are running at 6.9%. Mortgage Bankers Association 2008. This delinquency rate is not localized to Georgia, but is a national (if not, perhaps, an international) problem.

California has a default rate in some counties of 8%. Property taxes are due Thursday, but Stanislaus County auditors predict a startling spike in unpaid taxes. If trends hold, about 8 percent of what's owed won't be paid. That's about triple what is normal. Unpaid tax expected to soar. October 14, 2008, Modesto Bee.

Florida's delinquency and default rate is twice that of Georgia's.

More Tampa Bay property owners than ever before failed to pay their real estate taxes this year. The surge is unprecedented, officials say, and the reasons are clear: a slumping real estate market, stagnant wages, growing unemployment and the rising cost of energy, goods and services. "It's the economy, the economy, the economy," Pasco County Tax Collector Mike Olson said. "It doesn't take a rocket scientist to figure out what is going on."
Some taxpayers, credit experts say, find themselves unable to pay tax bills that were not included as escrow payments in their subprime mortgages. The increase in tax delinquencies does not threaten local government operations. That's because the unpaid taxes represent a meager fraction of the total property tax revenues that local governments collect. And there's a mechanism - the tax certificate auction - for governments to recoup unpaid bills.
But more people are seeing their homeowner status jeopardized. "When the economy turns, which it eventually will, all these problems will go away," Olson said. "But the unfortunate thing is how people's lives get turned upside down until that happens." In Florida, tax bills are mailed out in November. They become delinquent if not paid by April 1. Around the end of April, tax collectors advertise the unpaid accounts for auction, which take place by June 1.
Between the time delinquent accounts are advertised and when an auction is held, many property owners resolve their debt, either by paying up or declaring bankruptcy.
Still, the number of advertised accounts gives a good snapshot of how many property owners had not paid tax bills after April 1.

In Pinellas, those numbers rose nearly 23 percent this year, coming on top of a 37 percent increase last year. Other counties saw even bigger increases this year: 27 percent in Hernando, 30 percent in Hillsborough and 33 percent in Pasco. Statewide figures are not available, but counties around Florida have seen, on average, about a 20 percent hike this year in the number of unpaid property tax accounts, said Dale Summerford, Gadsden County's tax collector and past president of the Florida Tax Collectors Association. Tampa Bay's unpaid property taxes soar. By Will Van Sant, Times Staff Writer, Saturday, June 14, 2008

The coming tax sales will provide investors with substantial opportunities to either acquire the delinquent properties and/or recover a 20% in the first year and 10% for each year thereafter.

Substantial information on this issue in Georgia is located at:

http://www.woodandmeredith.com/realestate/taxes/tax_faq.html

The Fulton County Tax Commissioner describes the redemption process as follows:
After sale on the courthouse steps the successful bidder receives a tax deed from the Sheriff. The purchaser at the sale has no immediate right of possession and by law the property owner or any person having the right, title, or interest in or lien upon the property can redeem it from the tax deed holder. This redemption can occur at any time within twelve months of the sale or foreclosure, and at any time after the sale until the right of redemption is barred. The right of redemption can only be barred one year after the sale. After the right of redemption is barred, the deed holder has to file a quiet title action in order to gain full control of the property.
As an illustration of how the redemption process works, take for example a $200,000 property being foreclosed for tax lien and Sheriff costs, totaling $5,000. The opening bid would be $5,000. If the winning bid, for example, is $100,000, then this amount becomes the cost basis for all redemption calculations. Under existing law "the redemption price, shall be the amount paid for the property by the purchaser after the sale for taxes, plus any special assessments on the property, plus a premium of 20 percent of the amount for each year or fraction of a year which has elapsed between the date of the sale and the date on which the redemption payment is made...". After the first year there is an additional 10% per year or part thereof. To redeem the property anytime within the first year anyone having an interest in the property can redeem it for $100,000 plus a premium of 20% of $100,000 - a total of $120,000. The Sheriff would have in her tax account a surplus or overbid amount of ($100,000 -$5,000) $95,000 for "the person entitled to receive", usually the property owner, to use towards the redemption cost of $120,000. The property owner actually has to come up with $25,000 out of pocket in order to redeem the property. I have heard of instances where the property owner claimed the excess funds from the Sheriff and abandoned the property to the tax deed holder. Tax Collections, Fulton County Georgia Tax Commissioner Web Site.

While the unpaid tax collections harm local Georgia County services, they present a unique opportunity to an investor. The money used to purchase the property at tax sale either leads to the ownership of the property in a year or the former owner has to pay 20% or more to redeem the property from the tax purchaser.

Hugh Wood, Atlanta, Georgia


& & &

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

& & &

Lawsuits Against Housing Lenders :: The Tsunami is Coming

The Georgia Court of Appeals recently affirmed a broad ranging Class Action Certification against a lender that charged monthly inspection fees and attorneys fees while the borrower was in bankruptcy.

The Georgia Court of Appeals found the lender’s conduct rather shocking, in that the lender surreptitiously recorded inspection charges and attorneys fees against the borrower while the borrower was in bankruptcy and protected by the stay. The lender did not disclose or reveal the charges until the bankruptcy was concluded and the stay was lifted or extinguished. Thus, the borrower was stuck with the new, undisclosed, charges that could have been scheduled had the lender disclosed them. The Plaintiff, Irene Canada, showed that the lender’s policy was substantially the same in all fifty (50) states. Liberty Lending Services v. Canada, Court of Appeals of Georgia, Third Division, No. A08A1295, September 12, 2008.

Judge Miller’s Concurrence contains strong languages against the lender’s practice:

While I concur fully in the majority opinion, I write separately to emphasize the deliberate nature of Liberty's conduct, which is apparently calculated to deprive homeowners such as Canada of the protections of the federal bankruptcy laws, thereby subverting the purpose of those laws. I also write to emphasize that the breach of contract claims asserted by Canada are not without precedent - i.e., they are not as far-fetched as Liberty would have us believe. Liberty, Supra, at ___.

Waves of suits are being filed against lenders in State and Federal Courts. In fact, until this credit crisis, blown housing bubble, housing meltdown (whatever you wish to call it) works it way through the economic system, housing related lenders and servicers are in for a rough ride in the legal system.

In the first three months of this year, 170 subprime-related lawsuits were filed in federal court (nearly half of them in New York and California), almost totaling the number filed in the second half of 2007. Nearly half of those filed in the first quarter of this year were putative class actions filed by home-loan borrowers against lenders, mortgage brokers and many others, alleging discriminatory lending practices, improper charges or inadequate disclosures, among other issues. Wall Street Journal, Law Blog, April 24, 2008.

What strikes me as odd about this Liberty Class Certification is not the straight forward discussion of the conduct and, ergo, the certification, but rather, that class certification exists at all against a lender in Georgia. Georgia is a very pro-creditor state. These types of rulings make me thing that the legal and political winds are shifting for a while, particularly against housing lenders. I doubt Georgia will cease to be a creditor jurisdiction – fraud or no fraud – but something is happening.

Residential housing lenders and servicers are in for a difficult few years in the Court system. These suits have just begun.

Hugh Wood, Atlanta, Georgia.


It appears Liberty has applied to the Georgia Supreme Court for a Writ of Certiorari.

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LIBERTY LENDING SERVICES v. CANADA, No. A08A1295
Court of Appeals of Georgia, Third Division
September 12, 2008

Appellant
Ms. Lori L. McGowan
Mr. Michael J. Bowers
Mr. T. Joshua R. Archer
Mr. Christopher Scott Anulewicz
Ms. Marlie Anne McDonnell

Appellee
Ms. Angela Carter McElroy
Mr. John C. Bell Jr.
Hon. Roy E. Barnes
Mr. Leroy Weathers Brigham

BLACKBURN, P. J., MILLER and ELLINGTON, JJ.

Blackburn, Presiding Judge.
In this civil action, Irene Canada sued Liberty Lending Services ("Liberty"), individually and on behalf of a class of similarly situated persons, alleging that Liberty breached the terms of a security deed by failing to provide written notice prior to assessing inspection and attorney fees that it incurred to protect its interest in the subject property during Canada's bankruptcy. Liberty appeals from the certification of the class, arguing that the trial court abused its discretion in certifying the class under OCGA § 9-11-23 (a) and (b). For the reasons set forth below, we affirm.
The record shows that in 1984, Canada purchased a home, which she financed with a loan from Nationwide Lending Group that used the property as
security for the debt. Subsequently, the loan was transferred and assigned to Liberty for servicing. Paragraph 7 of the security deed provides in part:
If Borrower fails to perform the covenants and agreements contained in this Deed or if any action or proceeding is commenced which materially affects Lender's interest in the Property including but not limited to eminent domain, insolvency, code enforcement or arrangements or proceedings involving a bankrupt or decedent then Lender at Lender's option, upon notice to Borrower may make such appearances, disburse such sums and take such action as is necessary to protect Lender's interest including but not limited to disbursement of reasonable attorneys fees and entry upon the Property to make repairs. . . . Any amounts disbursed by Lender pursuant to this paragraph 7 with interest thereon shall become additional indebtedness of Borrower secured by this Deed.
Paragraph 8 of the security deed provides: "Lender may make or cause to be made reasonable entries upon and inspections of the Property, provided that Lender shall give Borrower notice prior to any such inspection specifying reasonable cause therefor related to Lender's interest in the Property." In addition, paragraph 18 of the security deed outlines the lender's remedies in the event of default and provides that "Lender shall be entitled to collect all reasonable costs and expenses incurred in pursuing the remedies in this paragraph 18, including, but not limited to, reasonable attorney fees."
In 1996, Canada defaulted on the loan, and as a result, Liberty notified her that it would be foreclosing on the property and seeking attorney fees pursuant to OCGA § 13-1-11 if the default were not cured. Shortly thereafter, Canada filed a Chapter 13 bankruptcy petition to prevent the foreclosure. During the bankruptcy, Canada brought her loan current by paying all arrearages and by making her regular monthly payments. During the bankruptcy, Liberty conducted inspections of Canada's property to protect its interest pursuant to paragraph 8 of the security deed and assessed inspection and attorney fees pursuant to paragraph 7. On August 5, 2001, the bankruptcy court discharged Canada. However, at that time, Liberty's records reflected that the unpaid principal balance of Canada's mortgage was $48,817.09. Thus, despite the fact that Canada attempted to bring her loan current during the bankruptcy, she was still in default when it was discharged.
Approximately one month after the discharge, Liberty notified Canada by letter of the default and that it would foreclose on her property if the default were not immediately cured. The alleged default was premised on Canada's failure to pay $2,748.02 in inspection and attorney fees that Liberty had incurred with respect to her loan during the bankruptcy. Prior to receiving the foreclosure letter, Canada was unaware that these fees had been assessed against her, as they had never been reflected on any statement sent to Canada or any documents filed with the bankruptcy court. Canada had received no notice of these fees as they accrued because, as a matter of policy, Liberty refrains from providing notice of, or demanding payment for, such charges against a mortgagor in bankruptcy. One month later, when the default had not been cured, Liberty notified Canada that it was starting foreclosure proceedings.
In November 2001, Canada sued Liberty, alleging that it breached the terms of the security deed when it conducted inspections of her property and assessed fees related to those inspections, as well as attorney fees, without prior notice. Canada further alleged a claim of conversion and that Liberty had assessed attorney fees in violation of OCGA § 13-1-11. Shortly after filing suit, Canada obtained a temporary restraining order ("TRO") that enjoined Liberty from foreclosing on her property.[1] Liberty answered and denied all of Canada's allegations. In April 2003, Canada amended her complaint to include six separate breach-of-contract counts (all of which related to Liberty's failure to provide prior notice of the assessment of inspection and attorney fees) two theft counts, one Georgia RICO count, and a count alleging that Liberty failed to comply with OCGA § 13-1-11. She requested damages in the amount of the improperly assessed fees as well as injunctive relief. In addition, Canada sought class certification.
In March 2007, Canada moved the trial court to re-open discovery on class certification issues. The trial court granted the motion, and additional discovery commenced, including the depositions of Canada and of J. B. Stamper, Liberty's designated Rule 30 (b) (6) representative. Subsequently, Canada filed a motion for class certification, which sought to have the class defined as:
All persons whose home loans were serviced by [Liberty] and: 1) who have filed Chapter VII or Chapter XIII bankruptcy proceedings, and 2) who have, since May 1, 1999, been charged fees for inspections and/or attorney fees without having been given written prior notice before the assessment of each inspection fee and each attorney fee; and 3) the assessed fees were not approved by a bankruptcy court.
In the same motion, Canada also sought to certify a subclass, which she defined as:
All persons whose home loans were secured by residential property located in the State of Georgia, whose home loans were serviced by [Liberty] and: 1) who have filed a Chapter VII or Chapter XIII bankruptcy proceeding, and 2) who have, since May 1, 1999, been charged fees for inspections and/or attorney fees without having been given written prior notice before the assessment of each inspection fee and each attorney fee; and 3) the assessed fees were not approved by a bankruptcy court.
A hearing on class certification was held, in which Canada testified and in which she introduced her security deed and the deposition of Liberty's 30 (b) (6) representative as evidence. Additionally, Canada introduced 51 (one for each state and the District of Columbia) 2007 Fannie Mae form mortgages, which Canada's counsel had obtained from Fannie Mae's website before the hearing, as evidence that the terms of the security instruments for the class members were nearly identical to the terms in Canada's security deed. In support of her contention that the form mortgages were similar to those of the putative class, Canada read portions of the deposition of Stamper (Liberty's 30 (b) (6) representative) into the record. In his deposition, Stamper testified that Liberty's policies are standard throughout the United States - i.e., it follows the same procedures with respect to any homeowner who files for bankruptcy, regardless of where the property is located. Stamper further asserted that Liberty's standard procedures with respect to such homeowners is justified by any security agreement that it holds, regardless of who originally issued that agreement and regardless of where it was issued. According to Stamper, Liberty bases this position on the fact that, to be marketable, a security agreement must contain provisions which ensure that the security deed is what Liberty terms "agency paper" - i.e., that the deed meets Fannie Mae or Federal Home Loan Bank guidelines for security agreements. Again according to Stamper, these provisions would include language materially similar to that contained in Canada's security agreement and on which Liberty relies in asserting a contractual right to engage in the conduct at issue. The trial court admitted the documents into evidence.
After the hearing, the trial court issued a detailed written order certifying the class. In its order, the trial court found that given Stamper's testimony, the Fannie Mae form mortgage agreements were similar enough to Canada's mortgage and proved the relevant terms of the security deeds of the putative class. The trial court further found that the central question common to all class members is whether standard language contained in all security agreements serviced by Liberty grants Liberty the contractual right to engage in the conduct at issue. This appeal followed.
1. Liberty contends that the trial court abused its discretion in certifying the class under OCGA § 9-11-23 (a) ("Rule 23 (a)"), arguing that the requirements under this subsection of the statute were not met. We disagree.
"Certification of a class action is a matter of discretion with the trial judge, and, absent abuse of that discretion, we will not disturb the trial court's decision." UNUM Life Ins. Co. of America v. Crutchfield.[2] We apply the "clearly erroneous" standard of review to the trial court's ruling, and we must affirm if the ruling is supported by any evidence. "We will not reverse the factual findings in a trial court's class certification order unless they are clearly erroneous." Village Auto Ins. Co. v Rush.[3] "In determining the propriety of a class action, the first issue to be resolved is not whether the plaintiffs have stated a cause of action or may ultimately prevail on the merits but whether the requirements of OCGA § 9-11-23 (a) have been met." (Punctuation omitted.) Duffy v. The Landings Assn.[4] See Ford Motor Credit Co. v. London.[5] These requirements are:
(1) numerosity - that the class is so numerous as to make it impracticable to bring all members before the court; (2) commonality - that there are questions of law and fact common to the class members which predominate over any individual questions; (3) typicality - that the claim of the named plaintiff is typical of the claims of the class members; (4) adequacy of representation - that the named plaintiff will adequately represent the interest of the class; and (5) superiority - that a class action is superior to the other methods of fairly and efficiently adjudicating the controversy.
(Punctuation omitted.) Carnett's, Inc. v. Hammond.[6]
(a) Commonality.
(OCGA § 9-11-23 (a)). In reviewing whether this requirement was met, we must analyze Canada's breach-of-contract claim and determine whether the class members were similarly situated. See id. at 127 (3). In support of its conclusion that the requirements of Rule 23 had been met, the trial court found that:
The core and predominant issues presented by this class action are whether or not the provisions of paragraphs seven and nine of the standard Fannie Mae mortgage language authorizes mortgagees and their servicers such as Liberty to assess against mortgagors after they have been discharged or dismissed from bankruptcy the attorney fees and inspection fees that the mortgagee or its servicer has incurred since the filing of bankruptcy and without any adjudication by a bankruptcy [court] of its entitlement to such fees.
Here common questions of law exist that predominate over any individual questions, and we agree with the trial court's conclusion that the class members were similarly situated. As explained supra, Stamper, Liberty's 30 (b) (6) representative, asserted that all security deeds that it services contain materially similar language with respect to a lender's rights in the event a mortgagor files for bankruptcy. Because of this fact, Liberty is able to implement its standard procedures with respect to mortgagors who enter bankruptcy without ever reviewing any individual loan agreement to ensure that it does afford Liberty such rights. Thus, Liberty's own admissions, standing alone, are sufficient to support the trial court's finding on this issue.
This finding is further supported by a comparison of Canada's security agreement with the Fannie Mae standard form mortgage agreements. As mentioned, the relevant portions of Canada's security deed are paragraphs 7 and 8. Paragraph 7 provides, in relevant part, that should the homeowner default on her obligations and/or declare bankruptcy then the Lender may, upon notice to the Borrower, "make such appearances, disburse such sums, and take such action as is necessary to protect Lender's interest, including, but not limited to, disbursement of reasonable attorney's fees and entry upon the Property to make repairs." The paragraph further provides that
Any amounts disbursed by Lender, pursuant to this paragraph 7, with interest thereon shall become additional indebtedness of Borrower secured by this Deed. Unless Borrower and Lender agree to other terms of payment, such amounts shall be payable upon notice from Lender to Borrower requesting payment thereof, and shall bear interest from the date of disbursement at the rate payable from time to time on outstanding principal under the Note unless payment of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate permissible under applicable law.
Paragraph 8 of Canada's security deed provides that the "Lender may take or cause to be made reasonable entries upon inspections of the Property, provided that Lender shall give Borrower notice prior to any such inspection specifying reasonable cause therefor related to Lender's interest in the Property."
As the trial court found, similar language appears in paragraphs 7 and 9 of the "Uniform Covenants" contained in each of the Fannie Mae standard form mortgage agreements. Paragraph 7 of each such form grants the lender the right to "make reasonable entries upon and inspection of the [p]roperty." The lender may also inspect "the interior of the improvements on the property," provided it has reasonable cause to do so. The lender must provide the mortgagor with notice of such reasonable cause either before or at the time of such interior inspection.
Paragraph 9 of the standard forms provides that in the event the homeowner declares bankruptcy, "the Lender may do or pay whatever is reasonable and appropriate to protect [its] interest in the Property and its rights under" the loan agreement, including "paying reasonable attorneys' fees to protect . . . its secured position in a bankruptcy proceeding." The paragraph further provides that "Any amounts disbursed by Lender under this [paragraph] 9 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment."
Based on this comparison, we agree with the trial court's findings that there is no material difference between the relevant language found in paragraphs 7 and 8 of Canada's security agreement and that found in paragraphs 7 and 9 of the Fannie Mae standard form mortgages. Liberty nevertheless argues that a pre-lawsuit notice provision contained in the form mortgages precludes a finding of commonality. However, this assertion was not raised below and thus provides nothing for us to review. See Johnson v. First Union Nat. Bank.[7] Moreover, "as long as common issues predominate, a class may be certified even if some individual questions of law or fact exist." Village Auto Ins. Co., supra, 286 Ga.App. at 691(1). Accordingly, the trial court did not abuse its discretion in finding that Canada met the commonality requirement under Rule 23 (a). See J.M.I.C. Life Ins. Co. v. Toole[8] (commonality requirement met where it was undisputed that class members executed materially-similar form contracts); UNUM Life Ins. Co. of America, supra, 256 Ga.App. at 583 ("[C]laims arising from interpretation of form agreements are considered to be 'classic' cases for treatment as a class action.").
(b) Typicality.
Liberty also argues that Canada failed to meet the typicality requirement under OCGA § 9-11-23 (a). We disagree. The typicality requirement under OCGA § 9-11-23 (a) is satisfied upon a showing that the defendant "committed the same unlawful acts in the same method against an entire class." Kennedy v. Tallant.[9] Here, as previously discussed, Canada has alleged that Liberty's standard conduct with regard to assessing inspection and attorney fees against her and all similarly situated bankrupt mortgagors constituted breach of contract, fraud, theft, and conversion. Canada's claims and those of the class are thus one and the same, and the trial court did not abuse its discretion in finding that the proposed class meets the typicality requirement. See J.M.I.C. Life Ins. Co., supra, 280 Ga.App. at 377-378 (2) (c).
(c) Adequacy of Representation.
Liberty further argues that Canada failed to meet the adequacy of representation requirement under OCGA § 9-11-23 (a). Again, we disagree.
"The important aspects of adequate representation are whether the plaintiff's counsel is experienced and competent and whether plaintiff's interests are antagonistic to those of the class." (Punctuation omitted.) Taylor Auto Group v. Jessie.[10] Here, Liberty contends that Canada's interests are antagonistic to those of the class, arguing that because Canada's property will most likely be foreclosed upon once this dispute is resolved and the TRO is lifted, Canada has no incentive to resolve the case. However, Liberty has no evidence to support its speculation other than the length of time the case has been pending thus far. In fact, during the class certification hearing, Canada specifically testified that she had not attempted to drag out the lawsuit. The trial court's reliance on this testimony was not clearly erroneous. See Village Auto Ins. Co., supra, 286 Ga.App. at 688.
Liberty also contends that Canada cannot adequately represent the class, arguing that because Liberty sold Canada's mortgage to another mortgage company prior to class certification, Canada lacks standing to request injunctive relief. Canada's alleged lack of standing, however, was never argued before the trial court. "[I]ssues presented for the first time on appeal furnish nothing for us to review." Johnson, supra, 255 Ga.App. at 820 (1). Thus, the trial court did not abuse its discretion in ruling that Canada was an adequate representative of the class.
2. Liberty contends that the trial court abused its discretion in certifying Canada's monetary damages claims under OCGA § 9-11-23 (b) (3). We disagree. Before claims can be certified for class action under this subsection of OCGA § 9-11-23, Canada must show "that there are questions of law and fact common to the class members which predominate over any individual questions." (Punctuation omitted.) Griffin Indus. v. Green.[11]
Common issues of fact and law predominate if they have a direct impact on every class member's effort to establish liability and on every class member's entitlement to injunctive and monetary relief. Where, after adjudication of the classwide issues, plaintiffs must still introduce a great deal of individualized proof or argue a number of individualized legal points to establish most or all of the elements of their individual claims, such claims are not suitable for class certification under Rule 23 (b) (3).
(Punctuation omitted.) Roland v. Ford Motor Co.[12]
Here, Canada is asserting that Liberty assesses inspection and attorney fees in a similar manner regardless of the exact terms of the security contracts it services. She further asserts that the contracts at issue should be interpreted as requiring Liberty to give notice to a bankrupt mortgagor prior to assessing inspection and attorney fees against the mortgagor during the pendency of the bankruptcy and that such notice be given at the time the fees are assessed against the mortgagor's account, even though no specific language in either her security agreement or those of the putative class explicitly impose such a requirement. Canada also argues that Liberty's practice of accumulating inspection and attorney fees and not giving any notice thereof until after discharge in bankruptcy is improper. In addition to her breach of contract claims, Canada asserts that Liberty's interpretation of the security agreements so as to avoid the protections afforded by the bankruptcy laws breaches the implied contractual duties of good faith and fair dealing and that Liberty's conduct amounts to fraud, theft, and conversion. Liberty argues that issues of damages are too individualized to warrant class certification. However, minor variations in amount of damages do not destroy the class when the legal issues are common. See Earthlink, Inc. v. Eaves;[13] UNUM Life Ins. Co. of America, 256 Ga.App. at583-584. Thus, the trial court correctly found that the common questions of law presented by these claims predominate over any individual issues that may be present. See Village Auto Ins. Co., supra, 286 Ga.App. at 690-691 (1) (class certification proper where claims focus on "standard practices and documents, not on facts individual to each class member); UNUM Life Ins. Co. of America, supra, 256 Ga.App. at 583 ("[C]laims arising from interpretation of form agreements are considered to be 'classic' cases for treatment as a class action.").
Liberty also argues that the trial court abused its discretion in certifying the class because an individualized inquiry into each state's law to determine whether they have a statute similar to OCGA § 13-1-11 will need to be made, thus making the class unmanageable. Although such an inquiry may be required and may give rise to conflict of law questions, the trial court nevertheless determined that common issues presented in this case predominate over these potential individual issues, and we cannot say that it abused its discretion in doing so. See UNUM Life Ins. Co. of America, supra, 256 Ga.App. at 585. Accordingly, the trial court did not abuse its discretion in certifying the class under OCGA § 9-11-23 (b) (3).
3. Liberty contends that the trial court abused its discretion in certifying the class under OCGA § 9-11-23 (b) (2). However, because the trial court did not abuse its discretion in certifying the class under OCGA § 9-11-23 (b) (3), we need not determine whether the court erred in finding the class could alternatively be certified pursuant to OCGA § 9-11-23 (b) (2). See Earthlink, Inc., supra, ___ Ga.App. at ___, slip op. at 2 (2).
4. Liberty also contends that the trial court abused its discretion in certifying the Georgia subclass. Specifically, Liberty argues that Canada's theft by conversion, theft by deception, and Georgia RICO (OCGA § 16-14-4) claims require proof of reliance by each class member thus making a class action unmanageable. We disagree.
"In general, claims of fraud based upon oral misrepresentations are not appropriate for class treatment because the reliance element must be proved factually for each individual class member." Life Ins. Co. of Ga. v. Meeks.[14] However, "the simple fact that reliance is an element in a cause of action is not an absolute bar to class certification." Klay v. Humana, Inc.[15] "In claims of fraud based upon written representations, the reliance element may sometimes be presumed." Life Ins. Co. of Ga., supra, 274 Ga.App. at 218 (3) (b). Here, as previously noted, Canada's theft and RICO claims and those of the Georgia subclass are based upon the written representations contained in the provisions of the security agreements serviced by Liberty and not upon any oral representations. Given the fact that similar written representations were common to all the security agreements at issue, the circumstantial evidence that can be used to show reliance is also common to the whole class. See Klay, supra, 382 F.3d at 1259 (II) (C) (2). Accordingly, the trial court did not abuse its discretion in certifying the Georgia subclass.
Judgment affirmed. Ellington, J., concurs; Miller, J. concurs fully and specially.
CONCURRING OPINION
Miller, Judge, concurring fully and specially.
While I concur fully in the majority opinion, I write separately to emphasize the deliberate nature of Liberty's conduct, which is apparently calculated to deprive homeowners such as Canada of the protections of the federal bankruptcy laws, thereby subverting the purpose of those laws. I also write to emphasize that the breach of contract claims asserted by Canada are not without precedent - i.e., they are not as far-fetched as Liberty would have us believe.
Liberty's designated 30 (b) (6) representative testified that with respect to any mortgagor who files for bankruptcy, Liberty automatically orders monthly curbside inspections of the mortgaged property and retains an attorney to protect its interests in the bankruptcy proceeding. Liberty follows this procedure even if the mortgagor has never been in arrears. All charges incurred in connection with the property inspections and legal representation are assessed against the mortgagor's account. Charges for inspection fees are assessed automatically, on a monthly basis, while charges for reimbursement of attorney fees are assessed at the time Liberty receives the bill for the same. Liberty does not provide its mortgagors, during the pendency of their bankruptcy, notice of the fact of the monthly inspections, the fact that monthly charges are being assessed against the mortgagor's account for the same, or the amount of those charges. Nor does Liberty inform the mortgagor that attorney fees incurred by Liberty in connection with the bankruptcy will be assessed against their account, or provide notice at the time those fees are actually assessed. Instead, Liberty deliberately withholds such notice and demands for payment until the mortgagor's bankruptcy is discharged or dismissed- i.e., until the homeowner no longer has the protection of the bankruptcy court and Liberty can be sure that such charges are not subject to approval by that court. Following the resolution of the bankruptcy, Liberty then typically provides notice of the assessments for inspection and attorney fees by sending a standard acceleration letter, such as that received by Canada, giving notice of foreclosure and demanding payment of the entire amount due under the loan agreement.
In light of Liberty's "standard operating procedures," Canada premises her breach of contract claims on the theory that, as a matter of law, public policy, or both, the standard security agreement language at issue must be read in conjunction with the spirit and letter of the bankruptcy laws. This theory is supported by bankruptcy precedent. As one court has explained:
Creditors should not be able to assess fees to the account of a person in bankruptcy without the person's knowledge. A bankruptcy case's purpose is to allow a debtor to get out of financial trouble. At discharge, a debtor ought to be able to expect he or she has brought his or her secured debts current and wiped out all unsecured debts not paid through a plan. Undisclosed fees prevent a debtor from paying the fees in his or her plan-an option that should not be lost simply because a creditor chooses to not list the fee and expects to collect it later. . . . The right to modify a [Chapter 13] plan for post confirmation defaults [resulting from the post-confirmation assessment of fees] is meaningless if a lender can decide which fees and charges it will disclose and which it will hide until the case is complete and execution on debtor's collateral can be accomplished. Post confirmation charges, if not disclosed, could also thwart the real purpose of a bankruptcy case. A debtor that completes his plan by paying off his lender's entire arrearage and post petition installments may find himself in foreclosure the day after a discharge is granted, based on unpaid and undisclosed post confirmation charges and fees. This result is clearly at odds with the notion of providing a successful debtor a fresh start.
(Emphasis supplied.) In re Jones, 366 B.R. 584, 596 (Bankr. E.D. La. 2007) (disapproving lender conduct identical to Liberty's and rejecting the lender's argument that it had a contractual right to engage in such conduct). See also In re Sanchez, 372 B.R. 289, 305 (c) (ii) (Bankr. S.D. Tex. 2007) ("In failing to make the proper disclosures, the [lender] has acted in a manner antithetical to the spirit of the Bankruptcy Code. The three most important words in the bankruptcy system are: disclose, disclose, disclose."); In re Watson, 384 B.R. 697, 706 -707 (Bankr. D. Del. 2008) (noting that a court has the right to determine "whether asserted fees and charges are reasonable under the mortgage instruments and applicable law," and that therefore "the assessment of post-confirmation fees must be fully disclosed both to the Debtors and to the Court."); In re Nosek, 363 B.R. 643, 645 (Bankr. D. Mass. 2007) ("[A lender] cannot use its accounting procedures to contravene the terms of a confirmed Chapter 13 plan and the Bankruptcy Code. [Cit.]")
In light of the foregoing, it is clear that the central question in this case, common to all class members, is whether standard language found in all security agreements serviced by Liberty does, in fact, grant Liberty the contractual right to engage in the conduct at issue. I therefore fully concur in the majority holding affirming the trial court's certification of the class.
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Notes:
[1] This TRO was in effect at the time the notice of appeal was filed.
[2] UNUM Life Ins. Co. of America v. Crutchfield, 256 Ga.App. 582 (568 S.E.2d 767) (2002).
[3] Village Auto Ins. Co. v Rush, 286 Ga.App. 688 (649 S.E.2d 862) (2007).
[4] Duffy v. The Landings Assn., 254 Ga.App. 506, 507 (1) (563 S.E.2d 174) (2002).
[5] Ford Motor Credit Co. v. London, 175 Ga.App. 33, 37-38 (332 S.E.2d 345) (1985).
[6] Carnett's Inc. v. Hammond, 279 Ga. 125, 126 (1) (610 S.E.2d 529) (2005).
[7] Johnson v. First Union Nat. Bank, 255 Ga.App. 819, 820 (1) (567 S.E.2d 44) (2002).
[8] J.M.I.C. Life Ins. Co. v. Toole, 280 Ga.App. 372, 377 (2) (c) (634 S.E.2d 123) (2006).
[9] Kennedy v. Tallant, 710 F.2d 711, 717 (II) (11th Cir. 1983). We note that Georgia courts may rely on federal class action cases as persuasive authority. See State Farm &c. Ins. Co. v. Mabry, 274 Ga. 498, 499 (1) (556 S.E.2d 114) (2001).
[10] Taylor Auto Group v. Jessie, 241 Ga.App. 602, 603-604 (2) (527 S.E.2d 256) (1999).
[11] Griffin Indus. v. Green, 280 Ga.App. 858, 859 (635 S.E.2d 231) (2006).
[12] Roland v. Ford Motor Co., 288 Ga.App. 625, 629 (2) (655 S.E.2d 259) (2007).
[13] Earthlink, Inc. v. Eaves, ___ Ga.App. ___, slip op. at 2 (1) (Case No. A08A0430; decided July 11, 2008).
[14] Life Ins. Co. of Ga. v. Meeks, 274 Ga.App. 212, 217-218 (3) (b) (617 S.E.2d 179) (2005).
[15] Klay v. Humana, Inc., 382 F.3d 1241, 1258 (II) (C) (2) (11th Cir. 2004).
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Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

Foreclosure Rescission :: The Lender Get Out of Jail Free Statute

I am constantly asked why lenders can unilaterally rescind a foreclosure sale [in Georgia] within Thirty (30) days of a foreclosure sale for a good reason, bad reason or no reason. The answer, I suppose, is rooted in OCGA § 9-13-172.1, which is more of a tribute to the lobbying efforts of McCalla, Raymer than English common law.

The types of errors that occur in Georgia non-judicial foreclosure sales are, bankruptcy shortly prior to the sale (unknown to the lawyer crying the sale), a reinstatement or loan modification agreed to by the lender (unknown to the lawyer crying the sale) or some other similar error.

OCGA § 9-13-172.1 became law on July 1, 2003 via HB 301. It just simply provides that a lender may “unilaterally,” rescind the foreclosure sale for the reasons stated in OCGA § 9-13-172.1. It appears not to be “mutual.”

Since it was placed in the Civil Practice Act at Chapter 9 and not Real Property at Chapter 44, it is difficult to locate. For those having difficulty locating it, here it is:


§ 9-13-172.1. [Rescission].
(a) As used in this Code section, 'eligible sale' means a judicial or nonjudicial sale that was conducted in the usual manner of a sheriff´s sale and that was rescinded by the seller within 30 days after the sale but before the deed or deed under power has been delivered to the purchaser.
(b) Upon recision of an eligible sale, the seller shall return to the purchaser, within five days of the recision, all bid funds paid by the purchaser.
(c) Where the eligible sale was rescinded due to an automatic stay pursuant to the filing of bankruptcy by a person with an interest in the property, the damages that may be awarded to the purchaser in any civil action shall be limited to the amount of the bid funds tendered at the sale.
(d) Where the eligible sale was rescinded due to:
(1) The statutory requirements for the sale not being fulfilled;
(2) The default leading to the sale being cured prior to the sale; or
(3) The plaintiff in execution and the defendant in execution having agreed prior to the sale to cancel the sale based upon an enforceable promise by the defendant to cure the default, the damages that may be awarded to the purchaser in any civil action shall be limited solely to the amount of the bid funds tendered at the sale plus interest on the funds at the rate of 18 percent annually, calculated daily. Notwithstanding any other provision of law, specific performance shall not be a remedy available under this Code section.
History. Added by 2003 Ga. Laws 173, § 1, eff. 7/1/

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It has only been discussed in one case, Harpagon Company, LLC v. Gelfond, et al, 279 Ga. 59, 608 S.E.2d 597 (2005). In Harpagon, Supra, the discussion, in a Concurrence, only discussed whether it may be applied in the context of a tax sale, as opposed to the context of a foreclosure sale.


Hugh Wood, Atlanta, Georgia

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Harpagon, Supra, states as follows:

279 Ga. 59
HARPAGON COMPANY, LLC.
v.
GELFOND et. al.
No. S04A1605.
Supreme Court of Georgia.
February 7, 2005
Reconsideration Denied March 7, 2005.
Robert J. Proctor, Bradley A. Hutchins, Alexander N. Sedki, Proctor & Chambers, Atlanta, for Appellant.
Kenneth I. Sokolov, Fine & Block, Francis X. Moore, Frank X. Moore & Associates, William A. Castings Jr., City of Atlanta Law Department, Atlanta, for Appellee.
[279 Ga. 59] HINES, Justice.
This is an appeal by plaintiff, The Harpagon Company, LLC. ("Harpagon"), from the grant of summary judgment in favor of defendants, Alicia Gelfond as the Executrix of the Estate of William A. Gelfond et al. (collectively "Gelfond"), in a petition, pursuant to OCGA § 23-3-40 et seq., to quiet title to real property acquired by quitclaim deed following
Page 598
a tax sale. For the reasons which follow, we affirm the judgment in favor of the defendants Gelfond.
William A. Gelfond owned commercial real estate located at 587 Virginia Hill Avenue in Fulton County ("Virginia Hill property"); he also owned real property located at 759 Adair Avenue in Fulton County ("Adair Avenue property"). On March 11, 1994, he conveyed his interest in the Adair Avenue property to THR Development Group I, Inc. ("THR"). Mr. Gelfond died in 1996. His wife, Alicia Gelfond, was appointed executrix of his estate. On December 15, 1999, and on March 31, 2000, the Fulton County Tax Commissioner issued writs of fieri facias ("fi.fas.") for allegedly unpaid 1999 ad valorem taxes on the Virginia Hill property. Both fi. fas. named "William A. Gelford (sic)" as the defendant in fi. fa. They described the property by reference to an assigned 14-digit parcel identification number. The fi. fas. were transferred to Vesta Holdings, as nominee for Heartwood 11, Inc. ("Heartwood"). A tax sale was scheduled. The advertisement for the tax sale inaccurately listed THR as owner and defendant in fi. fa., and contained an inaccurate legal description of the property to be sold; even though the parcel identification number in the advertisement referred to the Virginia Hill property, the legal description was of the Adair Avenue property Gelfond had sold to THR.
The sheriff levied upon the Virginia Hill property and sold it to the highest bidder, Heartwood. The prepared tax deed of the sale erroneously named THR as owner/grantor and described the conveyed real estate as the Adair Avenue property previously conveyed [279 Ga. 60] by William A. Gelfond to THR. Heartwood conveyed by quitclaim deed its interest purchased at the tax sale to Harpagon. On August 11, 2003, Harpagon filed the present petition to quiet title to the Virginia Hill property. Two days later, on August 13, 2003, the Sheriff of Fulton County "administratively cancelled" the tax deed at the request of Gelfond's estate, citing procedural error in the conducting of the sale. [1] In the present action, Gelfond moved for judgment on the pleadings, or in the alternative, for summary judgment, asserting that Harpagon had no title, record or prescriptive, because the tax deed had been cancelled. Harpagon moved for partial summary judgment, arguing that the sheriff lacked authority to "administratively cancel" the tax deed, and that the right of redemption was barred pursuant to OCGA § 48-4-45 before the cancellation took place. After consideration of the pleadings, evidence, and argument, the trial court concluded that Harpagon's title was defective in that it did not acquire title from the grantor of the Virginia Hill property and that Gelfond has superior title. Consequently, the trial court ordered that the tax sale and tax deed were void and of no force and effect, awarded fee simple title of the Virginia Hill property to Gelfond free and clear of adverse claims of Vesta Holdings, Heartwood, Harpagon, or their successors in title.
1. In its order, the trial court cited, inter alia, Canoeside v. Livsey, 277 Ga. 425, 589 S.E.2d 116 (2003), for the proposition that "when property is sold at a tax sale as the property of someone other than the actual title holder, the sale is void." Harpagon contends that the trial court erred in relying on Canoeside v. Livsey because its holding applies only to non-judicial tax sales. Citing Bibb National Bank v. Colson, 162 Ga. 471, 134 S.E. 85 (1926), Harpagon argues that the owner of the property at the time of the tax sale is irrelevant because the tax liability attaches to the property at the time fixed by law for its valuation in each year and remains until the taxes are paid. But Harpagon's arguments are unavailing.
Harpagon can have no greater interest in the Virginia Hill property than its grantor, Heartwood. See McDaniel v. Bagby, 204 Ga. 750, 755(1), 51 S.E.2d 805 (1949); Copelin v. Williams, 152 Ga. 692(1), 111 S.E. 186 (1922); Clarence L. Martin, P.C. v. Wallace, 248 Ga.App. 284, 288(1), 546 S.E.2d 55 (2001). So the salient issue is whether Heartwood validly acquired the Virginia Hill property via the tax sale and the resulting tax deed. Pretermitting the questions of the effects of the misrepresentation of the owner and defendant in fi.fa. and the erroneous legal description
Page 599
of the property in the [279 Ga. 61] advertisement for the tax sale, Harpagon's arguments ignore the fact that the resulting tax deed in favor of Heartwood is fatally defective. Not only does the deed name the wrong owner, but it is impossible to determine with certainty the parcel of property it purports to convey. The property is described as "That tract or parcel of land conveyed by deed to THR DEVELOPMENT GROUP, INC. Recorded at Book 18165/Page 240 per Records of Fulton County, Georgia." But this is the Adair Avenue property. The deed also states that the property is known as "Virginia Ave." The Adair Avenue property was in the "Virginia Avenue Subdivision."
A description of property contained in a deed must be sufficient to identify the land being sold. See generally Pirkle v. Turner, 277 Ga. 308(1), 588 S.E.2d 733 (2003); Head v. Lee, 203 Ga. 191, 198(2)(b), 45 S.E.2d 666 (1947); Mull v. Mickey's Lumber & Supply Co., Inc., 218 Ga.App. 343, 344(2), 461 S.E.2d 270 (1995). "This court has often held that the description in an entry of levy on land and in a deed is sufficient where it furnishes a key whereby the identity of the land may be made certain by extrinsic evidence." GE Capital Mortgage Services, Inc. v. Clack, 271 Ga. 82, 84, 515 S.E.2d 619 (1999), quoting Head v. Lee, supra. at 191(2)(b), 45 S.E.2d 666.
Harpagon cites the parcel identification number on the instant tax deed as providing such a key. But the tax deed contains contradictory keys. Again, the deed erroneously lists the property owner as THR and incorporates by reference a legal description of the Adair Avenue property owned by THR. This directly conflicts with the parcel identification number referencing the Virginia Hill property. To accept Harpagon's argument would be to conclude that the deed conveys two parcels of property. The parcel identification number renders the deed internally inconsistent, even when an attempt is made to reconcile the inconsistencies. Thus, the identity of the property sought to be conveyed remains in question. Compare Adams v. City of Ila, 221 Ga.App. 372(1), 471 S.E.2d 310 (1996); Lawyers Title Ins. Corp. v. Nash, 196 Ga.App. 543, 396 S.E.2d 284 (1990).
2. Harpagon contends the trial court erred in granting Gelfond summary judgment based on Canoeside v. Livsey, supra, because it did not have a full opportunity to respond to the issues raised by that case. But, as has been discussed, the fatal flaws of the conveyance in this case go well beyond what was at issue in Canoeside v. Livsey. What is more, the sufficiency of the tax deed was clearly in question, and Harpagon had a full and fair opportunity to address that issue. Compare Dixon v. MARTA, 242 Ga.App. 262, 529 S.E.2d 398 (2000).
3. Harpagon also complains that the trial court erred by denying its motion for summary judgment on the issue of whether the sheriff had authority to administratively cancel the tax deed. However, it is unnecessary to address the sheriff's actions in this regard because the [279 Ga. 62] tax deed, in substance was void, and therefore, the propriety of the administrative cancellation of the tax deed is irrelevant. See Division 1, supra.
4. For the reasons outlined in Division 1, there is no merit to Harpagon's contention that it was due summary judgment on the issue of whether Gelfond's interest has been extinguished, that is, whether Gelfond's right to redeem the Virginia Hill property is barred under OCGA § 48-4-45. 5. In addition to refund of the purchase price of $230,000, Harpagon contends it was entitled to interest pursuant to OCGA § 48-4-42 because of the administrative cancellation of the deed. However, by its own terms, the statutory provision for interest is applicable to instances when the delinquent taxpayer opts to exercise his or her right to redeem the property. That is plainly not the situation in this case.
Judgment affirmed.
All the Justices concur.
CARLEY, Justice, concurring.
This case raises certain interesting and important questions, such as: whether our recent holding in Canoeside Properties v. Livsey, 277 Ga. 425, 428(2), 589 S.E.2d 116 (2003) that, "when property is sold at a tax
Page 600
sale as the property of someone other than the actual title holder, the sale is void[,]" applies only in the context of non-judicial tax sales; and, whether OCGA § 9-13-172.1 or any other statutory provision grants to the sheriff the administrative authority to cancel a tax deed. However, as the majority notes at pp. 4-5 in Division 1 and subsequently in Division 4,
[p]retermitting th[os]e questions, ... the ... tax deed in favor of [Appellant's grantor] is fatally defective. Not only does the deed name the wrong owner, [as in Canoeside Properties v. Livsey, supra], but it is impossible to determine with certainty the parcel of property it purports to convey.
"A grant of summary judgment must be affirmed if right for any reason, whether stated or unstated. [Cit.] It is the grant itself that is to be reviewed for error, and not the analysis employed. [Cit.]" Albany Oil Mill v. Sumter EMC, 212 Ga.App. 242, 243(3), 441 S.E.2d 524 (1994). Accordingly, if the tax deed is void for lack of a sufficient description, then the grant of summary judgment in favor of Appellees was correct regardless of any reason proffered by the trial court.
"If two clauses in a deed are utterly inconsistent, the former shall prevail...." OCGA § 44-5-34. Pursuant to this provision, "[w]here a deed contains two descriptions of the land conveyed, one general and the other particular, if there is any repugnance, the particular [279 Ga. 63] description will prevail. [Cit.]" Harlan v. Ellis, 198 Ga. 678, 681(2), 32 S.E.2d 389(1944). However, the deed in this case is utterly inconsistent in its description as to which of two separate properties was actually conveyed. Reading the deed as a whole, it is impossible to determine whether the conveyance is of the Virginia Hill property or the Adair Avenue property. " ' "It is undoubtedly essential to the validity of a grant that there should be a thing granted, which must be so described as to be capable of being distinguished from other things of the same kind...." ' [Cit.]" Carter v. Ray, 70 Ga.App. 419, 423(1), 28 S.E.2d 361 (1943). As the majority points out, to give effect to this instrument "would be to conclude that the deed conveys two parcels of property." Majority opinion, p. 6. "But where there is more than one lot of land answering the description, ... the deed ... would be void for uncertainty, the grantee ... having no election as to which piece he ... will take. [Cit.]" Blackwell v. Partridge, 156 Ga. 119, 129(2), 118 S.E. 739 (1923).
Therefore, based upon the principle of "right for any reason," I concur in the affirmance of the grant of summary judgment in favor of Appellees, and write separately so as to emphasize that the questions raised by Appellant regarding the permissible scope of certain decisional and statutory authority must await resolution in a subsequent appeal.
I am authorized to state that Chief Justice FLETCHER joins in this concurrence.
---------
Notes:
[1] The parties offer OCGA § 9-13-172.1 as possible statutory authority for the sheriff's action.


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Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084

www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

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Banks Will Become the New Engine of Social Engineering

Future generations will not remember that banks once loaned money for profit to be repaid with interest. In the future, banks will loan money for a profit to be repaid with interest and accomplish some attached social goal.

We have become so accustomed to the US Tax Code being used to manipulate our activities that it is now second nature. If you want to encourage the development of more Green Energy, grant energy tax credits. Or, impose taxes on carbon polluters.

Consider the overlay with regard to federal educational assistance granted to States for education. You (the State) may have this money from the federal government, however, it must be spent under the following conditions and within the following parameters.

Title IX was enacted as part of the Education Amendments of 1972 (Cits Omitted). This amendment prohibits sex discrimination in education by programs that receive federal financial assistance. It was patterned after Title VI of the Civil Rights Act of 1964, which prohibits discrimination on the grounds of race, color, or national origin in any program or activity receiving federal financial assistance. American Association of University Women. Hostile Hallways: The AAUW Survey onSexual Harassment in America's Schools. Washington DC: American Association of University Women Educational Foundation, 1993.

What does that have to do with banking, you ask? Well today, nothing; tomorrow, everything.

The US Treasury has stated it will purchase 250bn of preferred stock in certain US Banks.

NEW YORK (CNNMoney.com) -- The federal government on Tuesday announced an extraordinary and historic direct investment in the nation's banks - the biggest bet ever made with taxpayer dollars on the U.S. financial system.
As a start, the Treasury will pump $250 billion into financial institutions. Nine of the nation's largest banks have already agreed to take the capital and in return will give preferred shares to taxpayers and accept limits on executive pay. Half of the money, or $125 billion, will go to the nine large banks.
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The nine financial institutions that will split that first pool of money include the nation's four largest commercial banks - Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500). Also included are the two remaining independent investment banks - Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) - as well as Merrill Lynch (MER, Fortune 500), which last month agreed to sell itself to Bank of America. Two other major banks that primarily serve Wall Street rather than retail customers, Bank of New York Mellon (BK, Fortune 500) and State Street Corp. (STT, Fortune 500) round out the nine institutions getting help in this first round of investments. U.S. pulls the trigger: Government to pump billions into banks, expand deposit and loan guarantees, Chris Isidore, CNN Money, October 14, 2008.

I understand the Treasury Secretary's desire to thaw the US and world credit markets. Perhaps it is prudent to take emergent and heroic efforts to save the financial system, as we know it.

However, the poison is in the cure. The money injected into these banks will become part of the Tier 1 capital of the banks, which is good; it will provide the greatest leverage for the money invested. We the taxpayers, will be paid if and when the preferred stock pays dividends or is sold. But, it is a unseen “drug” to politicians – once they figure out its hidden usefulness.

Unless the feds are divested of this investment in banks in the near future, this "drug," will become permanent. Give a Congress the opportunity to perform further social engineering via its investment in all major US banks and the drug will become too powerful and too intoxicating to be relinquished.

These investments are, again, unsound in what purports to be a free economy.

Hugh Wood, Atlanta, Georgia


The photo is of the Second Bank of the United States. Pres. Andrew Jackson vetoed it into oblivion in 1832 for its rampant economic cronyism. You would think we would learn.

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See also, Commentary: Why this bailout is as bad as the last one :: By Jeffrey A. Miron Special to CNN Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A libertarian, he was one of 166 academic economists who signed a letter to congressional leaders opposing the government bailout plan.

CAMBRIDGE, Massachusetts (CNN) -- Ten days after passage of its $700 billion bailout of the financial sector, the U.S. Treasury has announced that it will implement this program, in part, by giving banks $250 billion in return for shares of their stock.
In other words, the U.S. government will acquire a significant ownership stake in the banking sector.
The goal of this stock purchase is to "inject liquidity." This will, in principle, improve bank solvency and increase bank lending, thereby minimizing the chance of a recession.
This approach appears to be favored by the Treasury over the previously announced strategy of buying "troubled assets" from banks. The Treasury is also planning to guarantee new bank debt and expand insurance of bank deposits.
Alas, the new approach is no better than the first. Here's why.
If banks were fundamentally sound but temporarily in need of cash, they could sell stock on their own to private investors. Few investors now want bank stock, however, because they cannot tell which banks are merely illiquid -- short of cash for new loans because their assets are temporarily sellable only at fire-sale prices -- and which are fundamentally insolvent -- short of cash and holding assets whose fundamental values are less than the bank's liabilities.
This lack of transparency is a crucial impediment to new investment, and therefore to new lending.
Government injection of cash, however, does little to improve transparency. A bank with complicated, depreciated assets is in much the same position after the government gives it cash as it was before, since outside investors will still have limited information about the solvency of any individual bank.
Perhaps the new cash will spur the sale of bad assets, or nudge banks to reveal their balance sheets, but that is far from obvious. Banks, moreover, might remain cautious even with this increased liquidity simply because of uncertainty about the economy. Thus it is hard to know whether cash injections will actually spur bank lending.
In any event, government ownership of banks has frightening long-term implications, whether or not it alleviates the credit crunch.
Government ownership means that political forces will determine who wins and who loses in the banking sector. The government, for example, will push banks to aid borrowers with poor credit histories, to subsidize politically connected industries, and to lend in the districts of powerful members of Congress. All of this is horrible for economic efficiency.
Government pressure will be difficult for banks to resist, since the government can both threaten to withdraw its ownership stake or promise further injections whenever it wants to modify bank behavior. Banks will respond by accommodating government objectives in exchange for continued financial support. This is crony capitalism, pure and simple.
Government ownership of banks will not be a temporary expedient. Politicians can swear they will unwind the government's position once "economic conditions improve," but no one can enforce this promise. The temptation to use banks as a political tool will be permanent, not temporary, so government ownership will continue for decades, or forever.
Worse yet, government ownership of banks sets a precedent for ownership in every industry that suffers economic hardship. Some might argue that banking is "essential," but many industries -- autos, steel, computers or agriculture -- will make similar claims when it is their turn to demand a bailout. Thus banking will be only the first victim in an enormous expansion of the government's role. This again will have disastrous consequences for economic efficiency.
Last but not least, a government "injection of liquidity" is still a bailout in all but name.
The injection means that banks get cash, and they get it now. This benefits current stockholders and bondholders, which is why stocks have jumped on news of the injections.
The government, however, gets stock that might end up being worthless, since some banks will fail anyway. The government gets stock that may never trade in a market or have its value determined by fundamentals. The government gets stock that it cannot sell for years, if ever, without generating turbulence in asset markets as investors interpret the government's decisions or position themselves to profit from them.
Government purchase of bank stock, therefore, is a transfer from taxpayers to people who took huge risks and lost. The United States, and the world, got into the current mess by trying to insure away risk, which everyone should have known was a fool's errand. Thus bailing out risk-taking -- or providing new guarantees for loans and deposits -- will generate even greater problems down the line.
It is time for the government to do the one thing it does well: nothing at all. This might mean serious economic pain in the short term, as more banks fail and the economy suffers through a recession. As for a cancer patient who has a tumor removed, however, the long-term benefit will more than compensate bondholders, which is why stocks have jumped on news of the injections.
The government, however, gets stock that might end up being worthless, since some banks will fail anyway. The government gets stock that may never trade in a market or have its value determined by fundamentals. The government gets stock that it cannot sell for years, if ever, without generating turbulence in asset markets as investors interpret the government's decisions or position themselves to profit from them.
Last but not least, a government "injection of liquidity" is still a bailout in all but name.

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Iceland is Broke and I don’t Feel So Good Myself

If you think you are going broke and you watched your retirement vaporize before your eyes last week, be glad you live in the United States and not in Iceland.

Iceland has borrowed 10 times the value of its Gross Domestic Product, its banks have collapsed into insolvency, its currency is in tatters (thus, it can no longer print its way out of debt) and one of its chief creditors, the United Kingdom, has invoked War powers to seize all overseas Icelandic assets within the UK’s reach.

All in all, it was a bad week for Iceland.

Since this is a real estate blog, why Iceland?

The mainstream media has demonized US real estate as the engine of the world collapse. While it certainly contributed to the collapse, US real estate is not and was not the only cause of the collapse.

The US housing bubble injected some of the cash that pumped up the world credit bubble, but not all.

Consider the home grown mortgage problems in Iceland – they seem very similar to ours. Thus, their own housing mess – not the United States housing market – contribute, in large part, to Iceland’s fall.

But the days when the economy seemed capable of gravity-defying feats are gone. So are the days when investors went on an international buying spree, adding some of the biggest names of the British and American retailing industries to their portfolios? Gone too, are the days when ordinary citizens effortlessly joined in the fun, taking out second mortgages to finance their own trips abroad or at least to the Laugavegur, the main shopping strip in Reykjavik. "It's difficult; the landscape is very difficult," said Franch Michelsen, a watch dealer in central Reykjavik, as he took a break Wednesday from cleaning his shop window. Some ordinary Icelanders face a similar problem to the one that brought down the banks. In recent months, many mortgages were taken out in foreign currencies - marketed by the banks as a way to benefit from lower interest rates abroad, as rates in Iceland rose into the double digits. Now, with the Icelandic krona plunging, homeowners suddenly have to pay back far more expensive euro or dollar values of their mortgages. At the same time, house prices are falling. Iceland is all but officially bankrupt, International Herald Tribune, Eric Pfanner, October 9, 2008.

This collapse looks on a global level so much like the US Savings & Loan collapse of 1989 – 1991, it is scary. You would think we would learn, but perhaps not. We deregulated the S&L’s; they moved into questionable loans. 15 years later, we deregulated banks (partially), investment houses and insurance companies. They plunged headlong into questionable loans and questionable exotic debt instruments. Drexel, Burham & Lambert crashed in 1990; it was the poster child of bad investment banking and newly minted junk bonds. Today, not only Lehman Brothers, but every similarly situated Investment bank crashed on Wall Street or begged to be merged into a regulated commercial bank. (Say it ain't so.)

A quick review of Iceland’s troubles shows the troubles are based on deregulation and massive overuse of credit. Sound familiar. Consider that Iceland has borrowed $120 billion of debt when their entire GNP is only $20 billion. By comparison, we (the US) would have to have borrowed $137,800 billion of debt, given that our GNP is $13,780 billion.

To put that into comparison, we have injected somewhere in the range of 1 to 1.4 Trillion dollars in the last month or so to attempt to stanch the credit bleeding. That is 700bn committed by Congress with 350bn presently allocated. An additional 630bn was recently injected by the Federal Reserve (which may actually be supported by new Treasury Bill sales); and, about we also saw 500bn of various injections from the Fed, the Treasury and the Administration.

The Treasury’s first injection of “rescue” capital into the world economy is limited to 250bn. One half of that entire amount would be required to stanch the bleeding in Iceland alone. That ignores the bleeding in the UK, France, Spain, Italy (fully bankrupt in their own right, yet again), Germany, Austria, Sweden, Norway, Denmark, India, Egypt, Indonesia, … and the list goes on.

In an address on Thursday, Prime Minister Haarde warned his countrymen of "the inevitable cut in living standards" that the country is facing. One of the most immediate results of the frozen credit market has been the ongoing devaluation of the krona. The currency has lost 30 percent of its value against the dollar in the last 30 days and inflation has soared to 14 percent. Iceland's currency lost 10 percent against the euro last week alone. In short, with the country's economy dominated by the banking sector, Reykjavik has little choice but to find a way to shore up Iceland's financial system. But even as the country's banks are too big to let fail, they might be too big to save should global credit markets not loosen up rapidly. Iceland's Financial Woes Could Push It Closer to EU, Der Spiegel, Oct 4, 2008.

If you had $100,000 in the bank in Iceland, (with or without bank insurance), its only worth $70,000 right now and its still in freefall. Look outside your window. Milk and Meat Prices are moving up at 15% per year – and that inflation rate is predicted to increase. Also, Iceland’s 401(k)s (It’s an analogy, ok) crashed at twice the rate yours did in the United States. They fell along with the world’s collapse, losing at least 50% in value across world markets AND the ones that were denominated in Icelandic krona, fell 30% in addition to the 50% loss of market value.

So, if you suffered a loss of your 401(k) from $100,000 to $50,000, Icelanders fell and additional 30% based on currency collapse. Thus, Krona denominated savings fell from $100,000 to $35,000.

We are going to feel a lot of pain as we wean the US off a fat laden diet of debt. However, our diet will feel nothing like some of countries of Europe and that of Iceland.

One thing that is clear. US real estate is not the scapegoat of the world. An objective view of world financial data shows that the US housing mess is not the sole cause of the world credit meltdown.

Hugh Wood, Atlanta, Georgia.



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The US Economy is 700 times larger than Iceland’s. $13.78 trillion (2007 est.) is US GDP; Iceland’s is 20bn. CIA World FactBook. 2008. In the American system one billion is 1,000,000,000 and a trillion is 1,000,000,000,000 so one trillion is one thousand times one billion. We have 300M they have 300,000 in population. Iceland has 1% of the population of the US.

Overview of The Complete HOPE Regulation :: 24 CFR 4001

Here are the Highlights of the Regulation:

1) The HOPE for Homeowners Program is a temporary program authorized
by section 257 of the National Housing Act, established within the
Federal Housing Administration (FHA) of the Department of Housing and
Urban Development (HUD) ...

2) Under this Program, an eligible mortgagor may obtain a
refinancing of his or her existing mortgage(s) with a new mortgage loan
insured by FHA, subject to conditions and restrictions specified in
section 257 of the National Housing Act and requirements established by
the Board. ...

3) A mortgage eligible to be refinanced under section 257 of the Act
must:(a) Have been originated on or before January 1, 2008;(b) Be secured by a property owned and occupied by the mortgagor as his or her primary residence, and be the only residence in which the mortgagor has any present ownership interest; and ...

4) In order for a mortgagor to be eligible to refinance his or her
existing mortgages under section 257 of the Act, the mortgagor must:
(a) Have had, on March 1, 2008, a monthly total mortgage payment of
more than 31 percent of the mortgagor's monthly gross income; (b) Not
have an ownership interest in any other residential property; (c) Not
have been convicted of fraud under federal or state law in the past 10
years; (d) Certify that the mortgagor has not intentionally defaulted
on any mortgage or debt and has not knowingly, or willfully and with
actual knowledge, furnished material information know to be false for
purposes of obtaining any Program mortgage; and (e) Meet such other
requirements as the Board may adopt. ...

5) Debt-to-income. The sum of the total monthly mortgage payment
under the Program mortgage and all monthly recurring expenses of the
mortgagor does not exceed 43 percent of the mortgagor's monthly gross
income. (b) Past credit performance. The mortgagor must have made at
least six full payments on the existing senior mortgage being
refinanced under the Program. ...

6) FHA's interest. Upon the sale or disposition of a property or
Program mortgage refinancing, FHA shall calculate and be entitled to
receive the portion of the initial equity
>135% 9% Cumulative CLTV <>135%................................... 9%
Cumulative CLTV

& & &

CHAPTER XXIV--BOARD OF DIRECTORS OF THE HOPE FOR HOMEOWNERS PROGRAMPART 4001--HOPE FOR HOMEOWNERS PROGRAMSubpart A--HOPE for Homeowners Program--General RequirementsSec4001.01 Purpose of program.4001.03 Requirements and delegated authority.4001.05 Approval of mortgagees.4001.07 Definitions.[[Page 58421]]Subpart B--Eligibility Requirements and Underwriting Procedures4001.102 Cross-reference.4001.104 Eligible mortgages.4001.106 Eligible mortgagors.4001.108 Eligible properties.4001.110 Underwriting.4001.112 Income verification.4001.114 Appraisal.4001.116 Representations and prohibitions.4001.118 Equity sharing.4001.120 Appreciation sharing.4001.122 Fees and closing costs.Subpart C--Rights and Obligations under the Contract of Insurance4001.201 Cross-reference.4001.203 Calculation of upfront and annual mortgage insurance premiums for Program mortgages.Subpart D--Servicing responsibilities4001.301 Cross-reference.4001.303 Prohibition on subordinate liens during first five years.Subpart E--EnforcementMortgagor False Information4001.401 Notice of false information from mortgagor-procedure.Appraiser Independence4001.403 Prohibitions on interested parties in insured mortgage transaction.Mortgagees4001.405 Mortgagees.Appendix A to Part 4001--Calculation of Future Appreciation Payment. Authority: 12 U.S.C. 1701z-22.Subpart A--HOPE for Homeowners Program--General RequirementsSec. 4001.01 Purpose of program. The HOPE for Homeowners Program is a temporary program authorized by section 257 of the National Housing Act, established within the Federal Housing Administration (FHA) of the Department of Housing and Urban Development (HUD) that offers homeowners and existing loan holders (or servicers acting on their behalf) FHA insurance on refinanced loans for distressed borrowers to support long-term sustainable homeownership by, among other things, allowing homeowners to avoid foreclosure. The HOPE for Homeowners Program is administered by HUD through FHA.Sec. 4001.03 Requirements and delegated authority. (a) Core requirements. This subpart establishes the core requirements for the HOPE for Homeowners Program that have been adopted by the Board of Directors (Board) for the HOPE for Homeowners Program (Program). In addition to the core requirements, codified in this subpart, the Board of Directors may adopt and issue additional requirements, standards and policies through non-codified regulations, including through order, Federal Register notice, or other statement, such as a mortgagee letter, to be issued and implemented by FHA. (b) Basic Program parameters. (1) FHA is authorized to insure eligible refinanced mortgages under the Program commencing no earlier than October 1, 2008. The authority to insure additional mortgages under the Program expires September 30, 2011. (2) Under this Program, an eligible mortgagor may obtain a refinancing of his or her existing mortgage(s) with a new mortgage loan insured by FHA, subject to conditions and restrictions specified in section 257 of the National Housing Act and requirements established by the Board. (c) Delegated authority. HUD is statutorily charged with administering, through FHA, the Program. In carrying out the Program requirements established by the Board, FHA is directed to issue such interim guidance and mortgagee letters as FHA determines necessary or appropriate, within the parameters of the requirements, standards and policies adopted by the Board. In addition to FHA's statutory charge, the Board of Directors authorizes FHA to address unique or case-by-case situations as may be encountered by FHA in carrying out the Program, and to take such action as may be necessary to implement the Board's requirements. This delegated implementing authority includes, but is not limited to, specifying application forms, mortgage application procedures, certifications or other assurances, and other information collection requirements, subject to such rules, standards and policies as the Board may adopt. (d) Other applicable requirements. Except as may be otherwise provided by the Board, the provisions and requirements in the FHA regulations in 24 CFR part 203, which are generally applicable to all FHA-insured single family mortgage insurance programs, also apply with respect to the insurance of a refinanced eligible mortgage under the Program.Sec. 4001.05 Approval of mortgagees. (a) Eligibility. In order for a mortgage to be eligible for insurance under this part, the mortgagee originating the mortgage loan and seeking mortgage insurance under this part shall have been approved by the Secretary pursuant to 24 CFR part 202. (b) Mortgagee whose loan is to be refinanced. A mortgagee holding or servicing an eligible mortgage to be refinanced and insured under section 257 of the National Housing Act is not required to be an approved mortgagee as required in paragraph (a) of this section, unless it seeks to be the originator of the refinanced mortgage to be insured by FHA.Sec. 4001.07 Definitions. As used in this part and in the Program, the following definitions apply. Act means the National Housing Act (12 U.S.C. 1701 et seq. ). Allowable closing costs mean charges, fees and discounts that the mortgagee may collect from the mortgagor as provided in 24 CFR 203.27(a). Board means the Board of Directors for the HOPE for Homeowners Program, which is comprised of the Secretary of HUD, the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve System (Federal Reserve Board), and the Chairperson of the Board of Directors of the Federal Deposit Insurance Corporation or the designees of each such individual. Capital improvements means a repair, renovation, or addition to a property that significantly enhances the value of the property, but does not include expenses for interior decor, landscape maintenance, or normal maintenance or replacement expenses. Contract of insurance means the agreement by which FHA provides mortgage insurance to a mortgagee. Default and delinquency fees means late charges contained in a mortgage/security instrument for the late or non-receipt of payments from mortgagors after the date upon which payment is due, including charges imposed by the mortgagee for the return of payments on the mortgage due to non-sufficient funds. Direct financial benefit, as used in section 257(e)(1)(A)(ii)(II) of the Act, consists of the greater of two factors: (1) The amount of initial equity the mortgagor has in the property at the closing for the Program mortgage as determined under Sec. 4001.118; and (2) The total amount that the existing senior mortgage and all existing subordinate mortgages on the property have been written down. Disposition means any transaction that results in whole or partial transfer of title of a property other than-- (1) A sale of the property; or (2) Any transaction or transfer specified in 12 U.S.C. Sec. 1701j-3(d)(1) through (8). Eligible Mortgage means a mortgage as defined in Sec. 4001.104. Existing senior mortgage means an eligible mortgage that has superior[[Page 58422]]priority and is being refinanced by a mortgage insured under section 257 of the Act. Existing subordinate mortgage means a mortgage that is subordinate in priority to an eligible mortgage which is being refinanced by a mortgage insured under section 257 of the Act. FHA means the Federal Housing Administration. HOPE for Homeowners Program (or Program) means the program established under section 257 of the Act. HUD means the Department of Housing and Urban Development. Intentionally defaulted for purposes of section 257(e)(1)(A) of the Act means the mortgagor: (1) Knowingly failed to make payment on the mortgage or debt; (2) Had available funds at the time payment on the mortgage or debt was due that could pay the mortgage or debt without undue hardship; and (3) The debt was not subject to a bona fide dispute. Mortgage has the same meaning as provided in 24 CFR 203.17(a)(1). Mortgagee has the same meaning as provided in 24 CFR 203.251(f). Mortgagor has the same meaning as provided in 24 CFR 203.251(e). Premium pricing means the price for the sale of a mortgage loan with an above market rate of interest. Prepayment penalties mean such amounts as defined in 12 CFR 226.32(d)(6) of the Federal Reserve Board's Regulation Z (Truth in Lending). Primary residence means the dwelling where the mortgagor maintains his or her permanent place of abode and typically spends the majority of the calendar year. A mortgagor can only have one primary residence. Program mortgage means the mortgage into which the existing senior mortgage is refinanced. Secretary means the Secretary of Housing and Urban Development. Total monthly mortgage payment means the sum of: (1) Principal and interest, as determined on a fully indexed and fully amortized basis; and (2) Escrowed amounts. (i) The monthly required amount collected by or on behalf of the mortgagee for real estate taxes, premiums for required hazard and mortgage insurance, homeowners' association dues, ground rent, special assessments, water and sewer charges and other similar charges required by the note or security instrument; or (ii) For mortgages not subject to escrow deposits, \1/12\ of the estimated annual costs for items listed in paragraph (2)(i) of this definition.Subpart B--Eligibility Requirements and Underwriting ProceduresSec. 4001.102 Cross-reference. (a) All of the provisions of 24 CFR part 203, subpart A, concerning eligibility requirements of mortgages covering one-family dwellings under section 203 of the National Housing Act (12 U.S.C. 1709) apply to mortgages on one-family dwellings to be insured under section 257 of the National Housing Act (12 U.S.C. 1701z-22), except the following provisions: 203.7 Commitment Process; 203.10 Informed consumer choice for prospective FHA mortgagors; 203.12 Mortgage insurance on proposed or new subdivisions; 203.14 Builder's warranty; 203.16 Certificate and contract regarding use of dwelling for transient or hotel purposes; 203.18 Maximum mortgage amounts; 203.18a Solar-energy system; 203.18b Increased mortgage amount; 203.18c One-time or up-front MIP excluded from limitations on maximum mortgage amounts; 203.18d Minimum principal loan amount; 203.19 Mortgagor's minimum investment; 203.20 Agreed interest rate; 203.29 Eligible mortgage in Alaska, Guam, Hawaii or the Virgin Islands; 203.32 Mortgage lien; 203.37a Sale of property; 203.42 Rental properties; 203.43 Eligibility of miscellaneous types of mortgages; 203.43a Eligibility of mortgages covering housing in certain neighborhoods; 203.43d Eligibility of mortgages in certain communities; 203.43e Eligibility of mortgages covering houses in federally impacted areas; 203.43g Eligibility of mortgages in certain communities; 203.43h Eligibility of mortgages on Indian land insured pursuant to section 248 of the National Housing Act; 203.43i Eligibility of mortgages on Hawaiian Home Lands insured pursuant to section 247 of the National Housing Act; 203.43j Eligibility of mortgages on Allegany Reservation of Seneca Nation Indians; 203.44 Eligibility of advances; 203.45 Eligibility of graduated payment mortgages; 203.47 Eligibility of growing equity mortgages; 203.49 Eligibility of adjustable rate mortgages; 203.50 Eligibility of rehabilitation loans; 203.51 Applicability; and 203.200-203.209 Insured Ten-Year Protection Plans (Plan). (b) For the purposes of this subpart, all references in 24 CFR part 203, subpart A, to section 203 of the Act shall be construed to refer to section 257 of the Act. Any references in 24 CFR part 203, subpart A, to the ``Mutual Mortgage Insurance Fund'' shall be deemed to be to the Home Ownership Preservation Entity Fund, and any references to ``the Commissioner'' shall be deemed to be to the Board or the Commissioner (as the context may require). (c) If there is any conflict in the application of any requirement of 24 CFR part 203, subpart A, to this part the provisions of this part shall control.Sec. 4001.104 Eligible mortgages. A mortgage eligible to be refinanced under section 257 of the Act must: (a) Have been originated on or before January 1, 2008; (b) Be secured by a property owned and occupied by the mortgagor as his or her primary residence, and be the only residence in which the mortgagor has any present ownership interest; and (c) Meet such other requirements as the Board may adopt.Sec. 4001.106 Eligible mortgagors. In order for a mortgagor to be eligible to refinance his or her existing mortgages under section 257 of the Act, the mortgagor must: (a) Have had, on March 1, 2008, a monthly total mortgage payment of more than 31 percent of the mortgagor's monthly gross income; (b) Not have an ownership interest in any other residential property; (c) Not have been convicted of fraud under federal or state law in the past 10 years; (d) Certify that the mortgagor has not intentionally defaulted on any mortgage or debt and has not knowingly, or willfully and with actual knowledge, furnished material information know to be false for purposes of obtaining any Program mortgage; and (e) Meet such other requirements as the Board may adopt. Sec. 4001.108 Eligible properties. (a) A mortgage may be insured under the Program only if the property that is to be the security for the mortgage is a one-family residence. (b) The following property types are eligible to secure a mortgage insured under the Program: (1) Detached and semi-detached dwellings; (2) A condominium unit; (3) A cooperative unit; or (4) A manufactured home that is permanently affixed to realty and is treated as realty under applicable state law except state taxation law. Sec. 4001.110 Underwriting. A mortgage may be insured under the Program only if the following conditions are met: [[Page 58423]] (a) Debt-to-income thresholds. Except as provided in paragraph (c) of this section: (1) Payment-to-income. The total monthly mortgage payment of the mortgagor under the Program mortgage does not exceed 31 percent of the mortgagor's monthly gross income; and (2) Debt-to-income. The sum of the total monthly mortgage payment under the Program mortgage and all monthly recurring expenses of the mortgagor does not exceed 43 percent of the mortgagor's monthly gross income. (b) Past credit performance. The mortgagor must have made at least six full payments on the existing senior mortgage being refinanced under the Program. (c) Trial modifications. For any mortgagor who is unable to meet the requirements of paragraph (a) of this section, a mortgage loan may nevertheless be presented for insurance by FHA under the Program if: (1) The mortgagor, using existing income, has made full and timely mortgage payments on the existing senior mortgage pursuant to the terms of the trial modification: (i) For the three consecutive months before submission of the application for the mortgage to be insured under the Program; and (ii) In an amount that is at least 90 percent of the estimated total monthly mortgage payment to be paid by the mortgagor on the Program mortgage. (2) The total monthly mortgage payment of the mortgagor under the Program mortgage does not exceed 38 percent of the mortgagor's monthly income; and (3) The sum of the total monthly mortgage payment under the Program mortgage and all monthly recurring expenses of the mortgagor does not exceed 50 percent of the mortgagor's monthly gross income. (d) Non-occupant co-borrowers. A mortgage loan may be insured by the FHA under the Program, even if one of the mortgagors on the loan (i.e. , a co-signer) does not reside at the residence securing the loan, provided that the non-resident mortgagor relinquishes all interests in the property that is to be security for the mortgage before an application is submitted for FHA insurance under the Program. (e) Amount of new mortgage payment. The mortgagor's total monthly payment on the mortgage to be insured under the Program must not be greater than the mortgagor's aggregate total monthly mortgage payment under the mortgagor's existing senior mortgage and all existing subordinate mortgages. (f) Limit on origination fees. Mortgagees may charge and collect from mortgagors allowable closing costs.Sec. 4001.112 Income verification. The mortgagee shall use FHA's procedures to verify the mortgagor's income and shall comply with the following additional requirements: (a) The mortgagee shall document and verify the income of the mortgagor by obtaining a transcript of the borrower's Federal income tax returns or a copy of the borrower's Federal income tax returns obtained directly from the Internal Revenue Service for the most recent two years; and (b) The mortgagee shall document and verify the mortgagor's income in any case in which the mortgagor has not filed a Federal income tax return. Sec. 4001.114 Appraisal. (a) The property shall be appraised by an appraiser on the FHA Appraiser Roster. (b) An appraisal of a property to be security for a Program mortgage shall be conducted in accordance with Uniform Standards of Professional Appraisal Practice (USPAP) but dated no more than 90 days from the date on which the mortgage transaction is closed, except as otherwise provided by the Board. (c) The mortgagee must inform the appraiser that copies of the appraisal may be shared with holders and servicers of existing subordinate mortgages. Sec. 4001.116 Representations and prohibitions. (a) Underwriting and appraisal standards. In order for the Program mortgage to be eligible for insurance under the Program, the underwriter and the mortgagee must provide certifications, in a format approved by the FHA, that the mortgage is in compliance with the underwriting and the appraisal standards set forth in this part, and that it meets all requirements applicable to the Program. FHA may require additional certifications by the mortgagee to ensure compliance with such additional standards as the FHA deems necessary given the specific mortgage transaction presented. (b) Mortgagor's liability for repayment. (1) The mortgagor shall provide a certification to FHA that the mortgagor has not: (i) Intentionally defaulted on the mortgagor's existing mortgage(s), or any other debt; or (ii) Knowingly or willfully and with actual knowledge furnished material information known to be false for the purpose of obtaining the mortgagor's existing mortgage(s). (2) The mortgagor shall provide any other certifications that FHA may otherwise require. (3) A mortgagor obligated under a Program mortgage shall agree in writing, on a form approved by the Board, to be liable to pay to FHA any Direct Financial Benefit achieved from the reduction of indebtedness on the existing senior and subordinate mortgages that are being refinanced under the Program if he or she makes a false statement or other misrepresentation in the certifications and documentation required for Program eligibility, including but not limited to the certifications required under section 257(e)(1)(A)(i) of the Act. (c) Mortgagee in violation of Program requirements. (1) If the mortgagee holds a Program mortgage that it originated and/or underwrote, and FHA finds that the mortgagee violated the Program requirements, FHA is prohibited from paying FHA insurance benefits to that mortgagee. (2) If the mortgagee no longer holds the Program mortgage that it originated and/or underwrote, FHA will pay the insurance claim to the mortgagee presently holding the Program mortgage (if all other requirements of the contract for mortgage insurance are met and the present holder did not participate in the violation of Program requirements) and shall seek indemnification from the non-holding mortgagee. (d) FHA insurance. A mortgage is eligible for insurance if the mortgagee submits a complete case binder within 120 days from the date of closing of the mortgage, or such other time as the Board may prescribe. The binder shall include evidence acceptable to the Board that the mortgage is current. (e) Mortgagor failure to make first mortgage payment. FHA shall not pay a mortgage insurance claim to any mortgagee if the first total monthly mortgage payment is not made within the time frame established in paragraph (d) of this section. The mortgagee shall not, directly or indirectly, make all or a part of the first total monthly mortgage payment on behalf of the mortgagor. The mortgagee is prohibited from escrowing funds at closing for all or part of the first total monthly mortgage payment.Sec. 4001.118 Equity sharing. (a) Initial Equity. For purposes of section 257(k)(1) of the Act, the initial equity created as a direct result of the origination of a Program mortgage on a property, as calculated by the Program mortgage lender, shall equal: (1) The appraised value of the property that was used at the time of origination of the Program mortgage to[[Page 58424]]underwrite the mortgage and to determine compliance with the maximum loan-to-value ratio at origination established by section 257(e)(2)(B) of the Act; less (2) The original principal amount of the Program mortgage on the property. (b) FHA's interest. Upon the sale or disposition of a property or Program mortgage refinancing, FHA shall calculate and be entitled to receive the portion of the initial equity (as defined by paragraph (a) of this section) set forth in section 257(k)(1) of the Act, subject to such standards and policies as the Board may establish. Sec. 4001.120 Appreciation sharing. (a) Calculation of appreciation. For purposes of section 257(k)(2) of the Act, the amount of the appreciation in value of a property securing a Program mortgage that occurs between the date the mortgage was insured under section 257 of the Act and the date of any subsequent sale or disposition of the property shall be equal to the following, as such a>135%................................... 9%Cumulative CLTV < 135%.................................. 12% ------------------------------------------------------------------------ Note: Appreciation payment to a subordinate lien holder will depend on actual appreciation at the time of sale of the property and will be limited by the amount of future appreciation HUD receives. Payment will be made according to the subordinate lien holder's position of priority in relation to the property at the time the H4H mortgage is originated, and will be based upon principal and interest on the date of origination of the Program mortgage, calculated at the pre-default contract rate of interest. Dated at Washington, DC, this 30th day of September, 2008. By order of the Board of Directors of the HOPE for Homeowners Program.Margaret E. Burns,Executive Director of the Board. [FR Doc. E8-23612 Filed 10-3-08; 8:45 am]BILLING CODE 4210-AA-P

& & &

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
hwood@woodandmeredith.com
http://www.hughwood.blogspot.com/
Phone: 404-633-4100
Fax: 404-633-0068

HOPE and EESA work in Tandem to Help Mortgage Debtors

The HOPE for Homeowners Act of 2008 and Section 109 of the Emergency Economic Stabilization Act (“EESA”) work in tandem to grant mortgage debtors substantial relief from subprime mortgages.

We have finally received the HUD regulations underpinning the HOPE as set out in the Housing and Economic Recovery Act of 2008 (“HERA”); they are listed in toto at the end of this article.

The new relief that will be issued to borrowers under HOPE, may be summarized as follows:

Summary of HOPE:

Under HOPE, new mortgages are offered by FHA-approved mortgagees to mortgagors who are at risk of losing their homes to foreclosure. The new FHA-insured mortgage refinances the borrower's existing mortgage at a significant write-down. Eligible borrowers must be unable to afford their existing mortgage payments, must occupy the residence that is the security for the refinanced mortgage as their primary residence, and may not have any present ownership interest in another residence. Investors and investor properties are not eligible for the FHA-insured refinanced mortgages. Under the Program, participating mortgagors share their new equity and future appreciation with FHA. Additionally, participation in this Program is voluntary. No mortgagees, servicers, or investors are compelled to participate. Summary of Sec. 109 Independent from HOPE, but yet designed to work with HOPE, Section 109 of EESA will provide additional relief to borrowers. Whenever the Secretary of the Treasury slows down from saving the world credit disaster, he will issue Regulations to define how Section 109 of EESA will be implemented.

Section 109 of EESA states:

SECTION 109 FORECLOSURE MITIGATION EFFORTS:

(a) Residential Mortgage Loan Serving Standards.
To the extent the Secretary acquires mortgages, mortgage-backed securities, and other assets secured by residential real estate, including multifamily housing, the Secretary shall maximize assistance for homeowners and use the Secretary's authority as investor to encourage the services of the underlying mortgages, consistent with a reasonable return to the taxpayer to take advantage of HOPE for homeowner program Section 257 of the National Housing Act or other available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.

(b) Coordination.
The Secretary shall coordinate with the Corporation (that is, the FDIC), the Board(with respect to any mortgages held by a federal reserve bank as provided in Section 110(a)(1)(c)), the Federal Housing Finance Agency, the Secretary of HUD and other federal government entities that hold troubled assets to attempt to identify opportunities for the acquisition of classes of troubled assets that will improve the Secretary's ability to improve the loan modification and restructuring process and, where permissible, to permit bona fide tenants who are current on their rent to remain in their homes under the terms of the lease. In the case of a mortgage on residential rental property, the plan shall include protecting Federal, State and local subsidies (and generate enough funds to ensure the maintenance of the property).

(c) Consent to Reasonable Loan Modification Requests.
Upon any request arising under exiting investment contracts, the Secretary shall consent, where appropriate, and considering net present value to the taxpayer, to reasonable request for loss mitigation measures, including terms extensions, rate reductions, principal write downs, increases in the portion of loans within a trust or other structure allowed to be modified, or removal of other limitations on modifications.

[My good friend, Rick Alembik, Esq., Decatur, GA (real estate litigator extraordinaire) asked “What does “investment contract,” mean in the context of Section 109(c)? The quick federal answer appears to be: Investors sometimes pool money into a common enterprise managed for profit by a third party. This is called an investment contract. Such enterprises may involve anything from cattle breeding programs to movie productions. This is often done through the establishment of a limited partnership in which investors, as limited partners, own an interest in a venture but do not take an active management role. Some of these securities are issued primarily for purposes of reducing income tax liability. "What every Investor Should Know, " Handbook, Office of Public Affairs, Policy Evaluation and Research U.S. Securities and Exchange Commission -- July 1994.]

As of October 6, 2008, we now have ½ of the Regulation Puzzle. Some weeks or months from now, we should have the Treasury Regulations under Sec. 109. We expect that when the HOPE regulations are used in tandem with the Section 109 Regulations, very substantial relief will be afforded to subprime borrowers.

Hugh Wood, Atlanta, Georgia

& & &

The HOPE Regulations are as follows:

[Federal Register: October 6, 2008 (Volume 73, Number 194)]
[Rules and Regulations]
[Page 58417-58426]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06oc08-13]

Part VI

Board of Directors of the HOPE for Homeowners Program

24 CFR Part 4001

HOPE for Homeowners Program: Program Regulations; Final Rule

[[Page 58418]]

BOARD OF DIRECTORS OF THE HOPE FOR HOMEOWNERS PROGRAM

24 CFR Part 4001

[Docket No. B-2009-F-01]
RIN 2580-AA00

HOPE for Homeowners Program: Program Regulations

AGENCY: Board of Directors of the HOPE for Homeowners Program.

ACTION: Final rule.

SUMMARY: This final rule sets forth the core requirements for the HOPE
for Homeowners Program that have been established by the Board of
Directors (Board) of the HOPE for Homeowners Program (Program). A new
section 257 of the National Housing Act (NHA) provides the authority
for this Program and oversight requirements to be performed by the
Board. Specifically, section 257(c)(1) of the NHA requires the Board to
prescribe such regulations as may be necessary or appropriate to
implement the Program. The Board has determined that the regulations
set forth in this rule are necessary and appropriate for the
implementation and effective administration of the Program.

DATES: Effective Date: October 6, 2008.

FOR FURTHER INFORMATION CONTACT: Emmanuel Yeow, Secretary of the Board
of Directors of the HOPE for Homeowners Program, Department of Housing
and Urban Development, 451 7th Street, SW., Room 9110, Washington, DC
20410-8000, telephone 202-708-3600 (this is not a toll-free number).
Persons with hearing- or speech-impairments may access this number
through TTY by calling the toll-free Federal Information Relay Service
at 800-877-8339.

SUPPLEMENTARY INFORMATION:

Background

The HOPE for Homeowners Act of 2008, located in Title IV of
division A of the Housing and Economic Recovery Act of 2008 (HERA),
(Pub. L. 110-289, 122 Stat. 2654, approved July 30, 2008), amended
Title II of the NHA to add a new section 257. New section 257 (12
U.S.C. 1701z-22) establishes within the Federal Housing Administration
(FHA), the Program, a temporary FHA program, that offers homeowners and
existing mortgage loan holders (or servicers acting on their behalf)
insurance on the refinancing of loans for distressed mortgagors to
support long term sustainable homeownership, including among other
things, allowing homeowners to avoid foreclosure. Section 257 of the
NHA authorizes the Department of Housing and Urban Development (HUD)
acting through the FHA to insure such refinanced eligible mortgages
commencing no earlier than October 1, 2008, and such authority expires
September 30, 2011.
Under the Program, new mortgages are offered by FHA-approved
mortgagees to mortgagors who are at risk of losing their homes to
foreclosure. The new FHA-insured mortgage refinances the borrower's
existing mortgage at a significant write-down. Eligible borrowers must
be unable to afford their existing mortgage payments, must occupy the
residence that is the security for the refinanced mortgage as their
primary residence, and may not have any present ownership interest in
another residence. Investors and investor properties are not eligible
for the FHA-insured refinanced mortgages. Under the Program,
participating mortgagors share their new equity and future appreciation
with FHA. Additionally, participation in this Program is voluntary. No
mortgagees, servicers, or investors are compelled to participate.
Section 257 of the NHA prohibits the new mortgage loan insured by
FHA from exceeding 90 percent of the appraised value of the property
that is security for the mortgage, or 132 percent of the dollar amount
limitation in effect for 2007 under section 305(a)(2) of the Federal
Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) for a
property of applicable size. In addition, section 257 also provides
that the term of the FHA-insured refinanced mortgage shall have a
maturity of not less than 30 years, and must bear a single rate of
interest that is fixed for the entire term of the mortgage. Section 257
directs that a mortgagor participating in the Program may not grant a
new subordinate lien on the mortgaged property during the first 5 years
of the term of the mortgage insured under the Program, except as the
Board may determine is necessary to ensure the maintenance of property
standards, and subject to the requirements that any new outstanding
liens (1) do not reduce the value of FHA's equity in the mortgagor's
home; and (2) when combined with the mortgagor's existing mortgage
indebtedness, do not exceed 95 percent of the home's appraised value at
the time of the new subordinate lien.
The fundamental principle behind the HOPE for Homeowners Act and
this Program is that providing new equity for distressed homeowners may
be an effective way to help homeowners avoid foreclosures.

This Final Rule

Section 257(c)(1) of the NHA requires the Board to establish
requirements and standards for the Program, and prescribe such
regulations and provide such guidance as may be necessary or
appropriate to implement such requirements and standards.\1\ In
addition to this broad direction to establish requirements and
standards for the Program, section 257 also outlines specific areas for
which the Board is charged with establishing standards and policies for
the Program.
----

\1\ The Board is composed of the Secretary of HUD, the Secretary
of Treasury, the Chairman of the Board of Governors of the Federal
Reserve System, and the Chairperson of the Board of Directors of the
Federal Deposit Insurance Corporation, or their respective
designees. Section 257(t) of the NHA also provides that the Board
may ``prescribe, amend, and repeal such bylaws as may be necessary
for carrying out the functions of the Board.'' Consistent with this
provision, the Board adopted bylaws regarding its organization,
staffing, and operational procedures. These bylaws were published in
the Federal Register on September 4, 2008 (73 FR 51621) and provide
that the Board's principal place of business is 451 7th Street, SW.,
Washington, DC 20410-0500.
----

This final rule provides the core requirements that the Board has
determined are necessary and appropriate for the implementation and
effective administration of the Program. Consistent with section 257 of
the NHA, however, the Board may establish standards and policies
through means other than codified regulations. More detailed provisions
implementing these core requirements may be issued by the Board or FHA
through orders, a Federal Register notice, or through FHA mortgagee
letters (or similar administrative issuances). Because this is a
temporary program designed to address the immediate needs of homeowners
faced with the looming threat of foreclosure, the regulations adopted
by the Board are limited to the basic requirements of the Program. The
Board's objective is to adopt regulations that address the core
features of the Program, include necessary safety measures to avoid
fraud, waste, and abuse, and leave FHA with sufficient flexibility to
issue such guidance or processing requirements to make this a Program
that is able effectively to assist distressed homeowners avoid
foreclosure.
The regulations in this part present the purpose, the authority
delegated to FHA, and reference to FHA requirements that are applicable
to the Program.\2\ The regulations define the

[[Page 58419]]

key Program terms, and address the following Program areas:
underwriting standards, representations of the mortgagee whose
mortgagor will participate in the Program, mortgagor representations,
certain prohibitions imposed on FHA, FHA equity sharing with the
borrower, FHA appreciation sharing with the borrower, the prohibition
on subordinate liens during the first five years of the mortgagor's
Program mortgage, and applicable hearing procedures. The Board has
determined that regulations addressing these areas are necessary for
immediate implementation and long-term administration of the Program.
----

\2\ Section 4(b) of the Department of Housing and Urban
Development Act, 42 U.S.C. 3533(b), provides that the Federal
Housing Commissioner shall head a Federal Housing Administration
within HUD and shall have such duties and powers as may be
prescribed by the Secretary of HUD. The Secretary of HUD has
delegated to the FHA Commissioner the power and authority to carry
out all FHA mortgage insurance programs, including authority to
issue rules or regulations to carry out these programs.
----

The payment to FHA of the equity created in the property as a
result of the refinancing of the eligible mortgage is designed to avoid
any windfall to mortgagors that would arise as the result of the
refinancing. The same windfall avoidance concept also applies to the
requirement that property appreciation be shared between the homeowner
and FHA, the latter which is authorized to share any appreciation funds
with subordinate mortgage holders.
Section 257(e)(4)(B) requires that, at a minimum, the Board take
into consideration three factors in determining the amount of
appreciation a subordinate mortgage lien holder may receive. The first
factor is the status or relative priority of the subordinate liens.
This factor is addressed in the payout allocation set forth in the
rule. After sale or disposition of the property, HUD's 50 percent
appreciation interest is paid to prior mortgage lien holders in order
of the seniority in which their mortgage liens were held, to the extent
of HUD's share. Mortgage lien holders that were in 2nd position behind
the 1st mortgage will be paid first, then 3rd mortgage lien holders,
and when the claims of all prior lien holders have been satisfied, HUD
will retain the balance, if any.
The second factor is the outstanding principal and accrued but
unpaid interest of the existing senior mortgage and subordinate
mortgages. Since the total balances may not accurately reflect the
amount the mortgagee potentially could recover in a foreclosure, the
Board determined that these balances should be compared to the
appraised value of the property. Therefore, this factor is expressed in
the matrix described below as a cumulative combined loan-to-value
(CLTV).
The third factor is the extent to which the principal and accrued
interest owed on the mortgages that are senior to the particular
subordinate mortgage exceed the property's current appraised value.
This factor is taken into account as well in the matrix for
appreciation sharing because the amount a subordinate mortgage holder
may receive is based in part on the amount of principal and interest,
calculated at the pre-default contract rate, owed on those mortgages
that are more senior than the subordinate mortgage in question.
The Board gave very careful consideration to these three factors by
examining several models developed to implement this authority. The
initial models were very intricate and concern was raised that adopting
any of them would cause confusion in the mortgage marketplace, and
discourage subordinate mortgage holders and servicers from
participating in the program. The Board also considered the potential
for the existing senior mortgage holder, who will receive proceeds from
the refinancing that are likely to exceed the holder's potential
recovery in a foreclosure, to compensate a subordinate mortgage holder
to participate in the Program. The Board encourages lenders to pursue
such arrangements.
The following matrix provides the mechanism for determining the
future appreciation payment a subordinate lien holder is eligible to
receive. The Board considers a number of benefits to be present with
this approach. It provides an incentive to action by subordinate lien
holders; reduces administrative costs; is simple to calculate and easy
to understand; and voids competing appraisals.

Appreciation Sharing Payout Matrix
-
Percent of
unpaid
principal and
Subordinate lien holder interest that
lien holder is
eligible to
receive*
-
Cumulative CLTV >135%................................... 9%
Cumulative CLTV <135%..................................>135%................................... 9%
Cumulative CLTV <>
Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
http://www.woodandmeredith.com/
hwood@woodandmeredith.com
Phone: 404-633-4100
Fax: 404-633-0068

New Foreclosure Rules Present a Slippery Slope for Lenders

On July 1, 2008 new foreclosure Notice provisions became law in Georgia. Under the new Notice law, foreclosing lenders are now required to give thirty (30) days Notice to owner/debtors and the Notice must include, "the name, address, and telephone number of the individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor." OCGA § 44-14-162.2.

While lenders may be able to show that they: published in the legal organ and mailed the Notice more than thirty (30) days prior to the foreclosure they may have difficulty proving "that the individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor."

As a litigator, this new fuzzy requirement that the lender provide the debtor a person with authority, seems to be the fodder for a wrongful foreclosure suit.
Debtors can vastly improve their potential post foreclosure legal position if they actually attempt to contact the person listed in the Notice and attempt to discuss their loan, mortgage modification or reinstatement. If the debtor calls and calls and calls the person on the Notice and cannot make contact, cannot get through or cannot get any reasonable discussion with the lender or the individual named in the Notice, does the debtor not then have new argument in the tort of wrongful foreclosure?

The lenders will assert that they have listed a person "with authority," who may be reached by the debtor. However, many years of past experience and "please hold for the next available operator," indicate to us that the inability to contact that individual may provide the debtor with a "fact question" concerning whether the lender, in fact, listed a true available human being as required under OCGA § 44-14-162.2.

Failure to provide proper notice, gives rise to one element of the tort of wrongful foreclosure.

Where a foreclosing creditor fails to comply with the statutory duty to provide notice of sale to the debtor in accordance with OCGA § 44-14-162 et seq., the debtor may either seek to set aside the foreclosure or sue for damages for the tort of wrongful foreclosure. Calhoun First Nat. Bank v. Dickens, 264 Ga. 285, 285-286(1), 443 S.E.2d 837 (1994). If the debtor elects to sue for damages, the recovery allowed is "the full difference between the fair market value of the property at the time of the sale and the indebtedness to the seller if the fair market value exceeded the amount of the indebtedness." Roylston v. Bank of America, N.A., et al., 290 Ga.App. 556, 660 S.E.2d 412 (2008).

Listed below is the press release published by the by the Governor's Office of Consumer Affairs on this issue.

Hugh Wood, Atlanta, Georgia


& & &


New Law Adds Fairness To Foreclosure Process

By Sarah Bolling, Staff Attorney, Home Defense Program

On May 13, 2008 Governor Sonny Perdue signed into law Senate Bill 531. The bill, strongly championed by its lead sponsors, Senator Bill Hamrick, the Chairman of the Senate Banking Committee, and Senator Nan Orrock, increases the notice to a homeowner before a lender can foreclose and introduces elements of fairness to the foreclosure process.

The law that has been on the books in Georgia since 1981 only requires a certified letter giving notice of the foreclosure sale to be sent to the homeowner a minimum of 15 days prior to the scheduled foreclosure. An advertisement must be run in a legal newspaper for four consecutive weeks prior to the foreclosure, which has meant that the legal advertisement could begin running before a homeowner had received notice of the foreclosure. Many of the legislators who supported SB 531 felt that out of fairness, a homeowner should receive notice before the advertisement is published, and that 15 days was not a sufficient amount of time. SB 531 therefore lengthens the notice period to at least 30 days prior to the scheduled foreclosure sale.

SB 531 also requires that the certified letter giving the homeowner notice of the foreclosure sale include the name, address, and telephone number of the "individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor." This provision of the bill is important because when homeowners are negotiating with their servicers, they often do not know what entity actually owns their loan. Sometimes a servicer will refuse to offer the homeowner a loan modification or other workout, claiming that they lack authority to do so. If the homeowner wants to reach the company that ultimately has the authority to accept any workout agreement, or if the homeowner wants to pursue a legal claim related to their mortgage loan, he or she needs to know the identity of the current holder of the mortgage loan. This bill requires that identity to be disclosed.

Lastly, SB 531 requires that the current holder of the mortgage loan record the assignment of the security deed, which shows the present owner of the mortgage loan, in the public deed records before conducting the foreclosure sale. The securitization of subprime mortgage loans at a hectic pace in recent years has resulted in some confusion over which loans are in which securitized pools. On many occasions, the wrong entity has commenced foreclosure proceedings against a homeowner. When this happens, it is fundamentally unfair and could mean that a homeowner is still obligated to the true creditor after the foreclosure has been conducted by the wrong entity. Therefore, SB 531 requires a much-needed safeguard against misbehavior and mistake by companies trying to foreclose.

The successful passage of the bill was made possible by the tireless advocacy of Senator Orrock, the leadership of Chairman Hamrick, the collaboration of Representative Wendell Willard, Chairman of the House Judiciary Committee, and Representative Ed Lindsey, Chairman of the House Judiciary Subcommittee which addressed this bill, and the efforts of the Working Families Caucus, Georgia State Trade Association of National Developers, Atlanta Housing Association of Neighborhood-based Developers, and the Home Defense Program of Atlanta Legal Aid. The bill takes effect July 1, 2008.

DeKalb County, GA Will Receive $18,545,013.00 in Foreclosure Rehabilitation Assistance

$96,934,622.00 worth of Georgia homes went to foreclosure sale on the Courthouse steps in 2006. Of that amount, an astronomical amount went to foreclosure in DeKalb County, Georgia.

Many of these properties were purchased by third parties that could not rent them and/or the lender has simply given up on attempts to sell these foreclosed properties. These foreclosures have left hundreds of homes abandoned and vacant in DeKalb County.

The Housing Economic and Recovery Act of 2008 became law on July 30, 2008. It allocated 3.92bn dollars to all States for the purchase, rehabilitation and sale of housing as to be directed by the U.S. Department of Housing and Urban Development. As part of that law, every state became eligible for direct grants to ameliorate the ravages of these rampant foreclosures.


Based on HUD’s recently issued regulations, DeKalb County, Georgia will be entitled to $18,545,013.00 in direct grants to purchase blighted homes, as long as the funds are expended by DeKalb County according to section 102 of the Housing and Community Development Act of 1974 (42 U.S.C. 5302).


Given that these foreclosed homes may be purchased substantially below their original sale value, DeKalb may be poised to purchase and rehabilitate somewhere between 100 to 200 hundred blighted properties.


This should provide significant improvement and relief to the many neighborhoods in DeKalb that are suffering from abandoned with unkempt and overgrown yards.
The relevant text of HUD memos on this new Regulation are listed below.

Hugh Wood, Atlanta, Georgia

& & &



HUD’s new Neighborhood Stabilization Program will provide emergency assistance to state and local governments to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within their communities. The Neighborhood Stabilization Program (NSP) provides grants to every state and certain local communities to purchase foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods and stem the decline of house values of neighboring homes.The program is authorized under Title III of the Housing and Economic Recovery Act of 2008.
Housing Economic and Recovery Act of 2008 Public Law 110-289 July 30, 2008
Emergency Assistance for the Redevelopment of Abandoned and Foreclosed Homes.
http://www.hud.gov/utilities/intercept.cfm?/offices/cpd/
communitydevelopment/programs/neighborhoodspg/hera2008.pdf
Neighborhood Stabilization Program Data
HUD's new Neighborhood Stabilization Program (www.hud.gov/nsp) provides emergency assistance to state and local governments to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within their communities. The Neighborhood Stabilization Program (NSP) provides grants to every state and certain local communities to purchase foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods and stem the decline of house values of neighboring homes. The program is authorized under Title III of the Housing and Economic Recovery Act of 2008.
This site provides data that may be useful for NSP grantees implementing the program. The following data are available on this website:
· Data used to calculate the formula grants. The allocation was done via a two-step method that first made statewide allocations and then local allocations. The raw data and step-by-step information on how each allocation was calculated are available for both the statewide allocation and the local allocations.
Detailed methodology (please read first)
Statewide Allocation Data
Local Allocations
· Data on the income limits applicable for NSP
· Data showing which Census Block Groups qualify for area benefit, where more than 51% of persons are determined to be low-, moderate-, and middle-income (less than 120% of area median family income) and a foreclosure and abandonment risk score for each block group.

http://www.huduser.org/publications/commdevl/nsp.html

& & &





Methodology for Allocation of $3.92 billion of Emergency Assistance for the Redevelopment of Abandoned and Foreclosed Homes

Section 2301 of the Housing and Economic Recovery Act of 2008 calls for allocating $3.92 billion for state and local governments (as such terms are defined in section 102 of the Housing and Community Development Act of 1974 (42 U.S.C. 5302)) for emergency assistance with redeveloping abandoned and foreclosed homes. The statute calls for the funds to be used to:

(A) “establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shared-equity loans for low- and moderate-income homebuyers;
(B) purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes and properties;
(C) establish land banks for homes that have been foreclosed upon; and
(D) demolish blighted structures.” (2301(c)(3))

The statute directs that the funds be allocated to “States and units of general local government with the greatest need, as such need is determined in the discretion of the Secretary based on

(A) the number and percentage of home foreclosures in each State or unit of general local government;
(B) the number and percentage of homes financed by a subprime mortgage related loan in each State or unit of general local government; and
(C) the number and percentage of homes in default or delinquency in each State or unit of general local government.” (2301(b)(3))

It further notes that the formula is to be developed within 60 days of enactment (2301(c)) and that no state shall receive less than 0.5 percent of the amount appropriated (2302).

The statute also provides direction to grantees that they should give priority emphasis in targeting the funds that they receive to “those metropolitan areas, metropolitan cities, urban areas, rural areas, low- and moderate-income areas, and other areas with the greatest need, including those--
(A) with the greatest percentage of home foreclosures;
(B) with the highest percentage of homes financed by a subprime mortgage related loan; and
(C) identified by the State or unit of general local government as likely to face a significant rise in the rate of home foreclosures.” (2301(c)(2))

Allocation

· Grantee Universe. The statute calls for allocating the Neighborhood Stabilization Program (NSP) funds to state and local governments. The initial grantee universe is comprised of the 1,201 state and local governments funded in FY 2008 under the regular Community Development Block Grant formula. However, if a local government receives an allocation based on their relative need (as discussed below) of less than $2 million, its allocation amount is rolled up into the state government grant. Of the 1,201 eligible state and local governments, 308 grants are made to states and local governments (including Puerto Rico, the District of Columbia, and the four insular areas).

Because this funding is one-time funding and the eligible activities under the program are different enough from the regular program, HUD believes that a grantee must receive a minimum amount of $2 million to have adequate staffing to properly administer the program effectively. In addition, fewer grants will allow HUD staff to more effectively monitor grantees to ensure proper implementation of the program and reduce the risk for fraud, waste, and abuse.

· Minimum Grant to States. The statute calls for no state (including Puerto Rico) to receive less than 0.5 percent of the appropriation. This equates to $19.6 million as a minimum grant for each state government. To meet this requirement, HUD first allocates funds based on relative need (see below) to each state as a whole (both entitled and non-entitled areas). If the state as a whole would receive less than $19.6 million, the state total is increased to $19.6 million. Sub allocations to the state government and local governments are then made as follows:

o Each state government is allocated $19.6 million.
o If the statewide allocation is more than $19.6 million, the remaining funds are allocated to state and local governments proportional to their relative need.
o If a local government receives less than $2 million under this sub-allocation, their grant is rolled up into the state government grant.

Note, this approach provides state governments with proportionally more funding than their estimated need under the assumption that state governments will serve both those areas not receiving a direct grant and those areas that do receive a direct grant, making sure that the total of all funds in the state are going proportionally more to those places (as prescribed by the statute):

o “with the greatest percentage of home foreclosures;
o with the highest percentage of homes financed by a subprime mortgage related loan; and
o identified by the State or unit of general local government as likely to face a significant rise in the rate of home foreclosures.” (2301(c)(2))

· Two step allocation - statewide allocation. The statute calls for allocating funds based on the number and percent of foreclosures, subprime loans, and loans delinquent or default. HUD staff experience is that the best source of data on those factors comes from the Mortgage Bankers Association National Delinquency Survey (MBA-NDS). This survey has been conducted for over 30 years and provides information on more than 70 percent of all active mortgages every quarter. The data are available at the state level. For the subprime and delinquency variables, HUD uses data from the second quarter of 2008. For foreclosures, HUD uses the sum of all foreclosure starts for all of 2007 and the first half of 2008.[1]

However, because the MBA-NDS only covers about 70 percent of all active mortgages, and the distribution in coverage could be different from state-to-state, HUD adjusts the MBA-NDS data using (a) statewide data from the 2006 American Community Survey on number of owner-occupied dwelling with a mortgage and (b) increases that number by the fraction of mortgages made between 2004 and 2006 that were investor-owned in the Home Mortgage Disclosure Act (HMDA) data[2]. Since approximately 44 percent of single-family rental units have a mortgage (2001 Residential Finance Survey) and the investor owned properties are a significant contributor to the inventory of foreclosed homes, HUD staff believe it is important that loans made to investors be included in estimating the statewide total of mortgages in place, particularly since homeownership rates vary from state to state.

The statewide allocation is calculated using the following formula:

Statewide Allocation = Appropriation *

{ [ 0.7* (State’s foreclosure starts in last 6 quarters) * (State foreclosure rate) +
National foreclosure starts in last 6 quarters National foreclosure rate

0.15 * (State’s Number of subprime loans) * (State subprime rate) +
National number of subprime loans National subprime rate

0.10 * (State’s number of loans in default) * (State default rate ) +
National number of loans in default National default rate

0.05 * (State’s loans 60 to 89 days delinquent) * (State 60 to 89 day delinq rate) ]
National loans 60 to 89 days delinquent National 60 to 89 day delinq rate

* (State vacancy rate in Census Tracts with more than 40% of the loans High-cost[3]) }
National vacancy rate in Census Tracts with more than 40% of the loans High-cost

Where the rate of a foreclosures, subprime loans, defaults, or delinquencies in a state relative to the national rate of that problem cannot increase or reduce a state’s share of the problem by more than 30 percent and a state’s vacancy rate difference relative to the national average cannot increase or decrease a state’s proportional share of the problems by more than 10 percent.[4] If a statewide allocation is less than $19.6 million, the statewide grant is increased to $19.6 million. Because this approach will result in a total allocation in excess of appropriation, all grants above $19.6 million are reduced pro-rata to make the total allocation equal to the total appropriation.

Note that 70 percent of the funds are allocated based on the number and percent of foreclosures, 15 percent for subprime loans, 10 percent for loans in default, and 5 percent for delinquent loans. The higher weight on foreclosures is based on the emphasis the statute places on targeting foreclosed homes.[5]

The statute specifies that funds be targeted toward the places most likely to need assistance with addressing the problems associated with abandoned homes due to foreclosure. To ensure that the funds not only target to foreclosure, but also to abandonment caused by foreclosure, HUD adjusts a state’s proportional share of need associated with foreclosures, subprime loans, and defaults and delinquencies upward for states with relatively higher rates of vacancies of 90 days or more when those vacancies are in neighborhoods with high concentrations of high-cost loans. States with lower rates of vacancies have their share of need adjusted downward. Because high rates of high cost loans are a good predictor of foreclosures, HUD uses the 90-day vacancy information from the United States Postal Service as of June 2008 in those neighborhoods with a high rate of high cost loans as a proxy to predict abandonment risk. As noted above, a state’s share of overall need can only be adjusted up or down by 10 percent using this factor.

· Two step allocation - sub-state allocation. Substate allocations work like a mini-formula. The appropriation amount is the amount calculated for the statewide allocation. A new formula is then applied to divide that “pie” up among the CDBG eligible grantees within that state.

Data on foreclosures, subprime loans, and delinquencies are available from various private sources at county, zip code, and metropolitan levels. Those sources, however, have varying levels of coverage and transparency as to how the data are collected and aggregated. In addition, the short time frames needed to make this allocation made it unlikely that access to these private data could be negotiated with the vendors in a timely manner to meet the deadlines for this allocation. There are no public data sources collected evenly across the United States on most foreclosures, delinquencies, and subprime loans. Nonetheless, there are data from public data sources that can reliably predict where the foreclosure crisis is occurring or may occur. HUD analysis shows that 75 percent of the variance between states on foreclosure rates can be explained by three variables available from public data:

o Office of Federal Housing Enterprise Oversight (OFHEO) data on decline in home values as of June 2008 compared to peak home value since 2000.
o Federal Reserve Home Mortgage Disclosure Act (HMDA) data on percent of all loans made between 2004 and 2006 that are high cost.
o Labor Department data on unemployment rates in places and counties as of June 2008.

Because these three variables are publicly available for all CDBG eligible communities and they are good predictors of foreclosure risk, HUD used them to estimate foreclosure rates in each jurisdiction within a state.

Using a simple linear regression, we created a model to estimate the foreclosure rate for each entitlement community, using the following formula:[6]

Model Foreclosure Rate=-2.211

- (0.131*Percent change in MSA OFHEO current price (June 2008) relative to the maximum in past 8 years)

+ (0.152*Percent of total loans made between 2004 and 2006 that are high cost[7])

+ (0.392*Percent unemployed in the place our county in June 2008[8]).

This model foreclosure rate can then be multiplied times the estimated number of mortgages within a jurisdiction (number of HMDA loans made between 2004 and 2006 times the ratio of ACS 2006 data on total mortgages in state / HMDA loans in state) to calculate the number of foreclosures in a jurisdiction. This estimated number of foreclosures in the jurisdiction is further adjusted such that when summed for all jurisdictions within the state it equals the total foreclosure starts in the state used for the statewide allocations.[9]

Each jurisdiction’s allocation is thus calculated as follows:

Local Allocation = (Statewide allocation - $19,600,000) *

[(Local estimated foreclosure starts in last 6 quarters) *
State total foreclosure starts in last 6 quarters

(Local vacancy rate in Census Tracts with more than 40% of the loans High-cost) ]
State vacancy rate in Census Tracts with more than 40% of the loans High-cost

Where the vacancy rate adjustment can’t increase or reduced a local jurisdiction’s allocation by more than 30 percent.

Local governments with an allocation of less than $2 million have their grants rolled into the state government grant allocation.
[1] HUD elected to use this measure of “foreclosure starts” over a period of time rather than “currently in foreclosure” because we wanted to capture the volume of foreclosures independent of state laws and other actions locally that may affect how long a property is in the foreclosure process.
[2] This is calculated as total mortgages = ACS Owner Occupied with mortgage *[1+(HMDA investor mortgages/HMDA renter mortgages)].
[3] Vacancy data are from a June 2008 extract of USPS data on addresses vacant for 90 days or longer in urban areas. Data on high cost loans are based on the sum of HMDA data for 2004 to 2006 on loans being made at 3 basis points or more above prime. The vacancy rate is calculated as the sum of vacant addresses in areas with high cost loans divided by all addresses in the state. The national rate is 1.1 percent.
[4] HUD was unable to identify reliable data on foreclosures, subprime loans, or delinquencies for the Insular areas. As such, HUD estimated insular area rates using the same model as it uses for the substate allocations. Only unemployment rate is used because there are not OFHEO or HMDA data available for insular areas.
[5] Delinquency rates and subprime rates correlate very highly with the foreclosure rate. As such, changing the weights has only a small impact on actual allocations.
[6] This regression has an R-square of 0.750 (correlation 0.866).
[7] A high cost loans is one with a rate spread is 3 percentage points above the Treasury security of comparable maturity.
[8] Unemployment rate is capped at 10 percent to correct for anomalies in the estimated foreclosure rate created by extremely high unemployment rates.
[9] This model also has high predictive value relative to other sources of data on foreclosures and subprime loans. Relative to the rate of statewide foreclosures from the private vendor RealtyTrac, this model has a correlation of 0.784. Relative to the rate of problems for subprime and Alt-A loans available from First American Core Logic, the correlation is 0.846. Relative to the 90 day delinquency rate from Equifax data, the correlation is 0.893. In general, all of these measures correlate well with each other, but the correlation of the model against each of these measures is often higher than they are with one another.

The HOPE for Homeowners Program Will Refinance Mortgages for Borrowers

The HOPE for Homeowners program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD's Federal Housing Administration (FHA). The program begins October 1, 2008 and ends September 30, 2011. Call 1 (800) 225-5342 for more information.

HOPE for Homeowners Frequently Asked Questions for Consumers

General/Program Related Questions

What is the HOPE for Homeowners Program (H4H)?

This new program, created by Congress, is intended to help borrowers at risk of default and foreclosure refinance into more affordable loans.

How can the H4H program help me?

If you are having trouble making your mortgage payments, this program may allow you to refinance your loan into a new 30-year fixed rate loan with lower payments.

Do I have to pay anything to apply?

There will be closing costs associated with HOPE for Homeowners loans; however, they may not be required to be paid out of pocket by the borrower. Please consult your lender or a HUD-approved Housing Counselor for more details.

How long will the process take?

Processing time will vary, but usually takes approximately 60 days. Please consult your lender when you apply.

What information do I need to apply?

Your lender is in the best position to answer this question based on your specific situation, but at a minimum you will need evidence of your income and assets, as well as your current mortgage information.

How long is the H4H program available?

The program began on October 1, 2008 and will end on September 30, 2011.

What interest rate will I receive?

The interest rate for the new H4H loan will be provided by the lender and is based on current market rates.

I don't want another adjustable rate mortgage. Will this interest rate be fixed or adjustable?

All HOPE for Homeowners loans are 30-year fixed rate mortgages insured by the Federal Housing Administration (FHA).

I contacted my lender and they are not interested in participating in this program. Can I apply with HUD?

HUD does not accept loan applications or lend money directly; however, you may apply with any FHA-approved lender who is participating in the program. You may also consult a HUD-approved housing counselor.

Eligibility Questions

My lender has started foreclosure proceedings. Can I still apply for H4H?

Yes, however, time is of the essence.

Is there an income restriction?

No, but you will need to demonstrate that you have sufficient, steady income to make the new H4H mortgage payments.

I recently filed for bankruptcy. Am I still able to apply for H4H?

Yes, borrowers in bankruptcy may participate; however, you will want to consult with the person handling your bankruptcy.

My lender has already foreclosed on my home. Can I still apply for H4H?

It may be possible depending on which stage of the foreclosure process you are in. You should talk to your lender immediately for more detailed information.

I have a first and second mortgage on my home. Can I still apply for H4H?

Yes, however, all your existing lenders must agree to release the liens against your home.

I am current on my mortgage. Can I apply for H4H?

Yes.

Lender Related Questions

Can you recommend a lender?

HUD does not recommend lenders; however, a list of participating lenders is located on our website at www.hud.gov. In the section marked "At your service," please click on the link "Find a HUD approved Lender in your area."

I can't reach my lender and I would like to apply. What should I do?

You may contact any participating lender to apply. For a list of HUD-approved lenders, please go to our website at www.hud.gov. In the section marked "At your service," please click on the link "Find a HUD approved Lender in your area."

My lender is not registered and I would like to apply. What should I do?

You may contact any participating lender to apply. For a list of HUD approved lenders please go to our website at www.hud.gov. In the section marked "At your service," please click on the link "Find a HUD approved Lender in your area."

Counseling Questions

I am not clear on what to do. How do I decide if this is the right choice for me?

You can contact a HUD-approved Housing Counselor in your area. They can help you evaluate the different options that may be available to you, and help you determine your best course of action. You can locate a housing counselor in your area on our website.

How can a housing counselor help me?

Housing counselors are knowledgeable about available programs to help struggling homeowners. They can review your specific situation, identify your options and help you make an informed decision.

Will I have to pay taxes on the portion of my loan(s) my current lender(s) "write off" or forgive?

You should contact the Internal Revenue Service at (800) TAX-1040, or your tax advisor regarding tax-related questions.


© http://www.hud.gov/hopeforhomeowners/index.cfm

[This is a reprint from the HUD Website. I have been searching for the mortgage modification terms that the FHFA will enact. However, as of today, no information is available on this issue. See. www.fhfa.gov ]


Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068

FHFA Will Modify Mortgage Terms by Brute Force

Major mortgage modification is coming, but from a different corner of the financial and legal playing field. If and when the newly created Federal Housing Finance Agency (“FHFA”) issues its mortgage modification regulations, borrowers will be able to demand that the mortgage and collection efforts of originators and servicers be conformed to the new FHFA guidelines.

To the best of this authors’ knowledge, those guidelines have yet to hit the Code of Federal Regulations.

Mortgage modification has been done by private lenders, Wells Fargo, WAMU, etc., for a number of years – some voluntarily and some – by outside federal and political pressure.

The mortgage industry was able to kill the provision that would have allowed federal bankruptcy judges to modify mortgages in bankruptcy in the enactment of the Emergency Economic Stabilization Act of 2008 (“EESA”). [That was really quite a feat of political acumen.]

These laws are so new, there simply is not enough well developed commentary or real world use to know how they will be used to modify mortgages. However, a pattern is emerging.

The longarm of the federal government is simply going to reach and modify mortgage by brute force. The government is going to do it via the back door of its now complete control of Fannie Mae and Freddie Mac.

Instead of passing laws (probably impairment of contact) requiring the originator to change the terms of the mortgage or allowing a federal bankruptcy judge to modify it posthoc, the feds are going to do it (we think) via its control of Frannie Mae and Feddie Mac.

All loans that qualified for Fannie Mae, were sold immediately after origination at the loan closing. Everyone agrees to abide by the regulations that oversee Fannie Mae and Freddie Mac.

It is hard to imagine a scenario, other than the 1929 to 1939 Great Depression, where both Fannie Mae and Freddie Mac end up in control of a Federal Conservator, yet it does now exist.

The FHFA is now the federal Conservator of Fannie Mae and Freddie Mac.

Under the recently passed EESA, the FHFA has been given broad new powers.

The FHFA was given the express authority, for the loans that it is the legal owner by way of the Conservatorship, to:

1) reduce the interest rate;
2) reduce the loan principal, and
3) craft other modifications.

FHFA was also given express authority to lean on (“lean on,” seems to be an appropriate legal term here) the servicer to modify the loans, if the FHFA does not own the legal right under its Conservatorship. Sec., 110, EESA of 2008.

As an industry, the loan originators and servicers have not yet had an opportunity to prepare regulations governing the enactment of HOPE (HOPE for Homeowners Act of 2008) in the Summer of 2008.

HOPE mandates that modifications shall:
1) achieve a ratio of no more than 31% of income to mortgage payment (anecdotal evidence indicates many subprime borrowers are paying in excess of 50% of net income to stay in their principal residence);
2) Mortgages shall be not less than 30 year fixed and Adjustable rates are eliminated by regulation (not law);
3) Second Mortgages are fundamentally (read the legislation for the exceptions) eliminated on modified mortgages;
4) Modifications are for primarily residences only (investor mortgages apparently will still go the way of foreclosure and elimination).

How the HOPE regulations with dovetail into or with FHFA Regulations is anybody's guess.

The method by which borrowers may assert their rights to modification will be determined, if and when FHFA issues Regulations. Once the Regulations are made public, then the borrowers may begin to “demand,” that the originators and/or servicers bring their mortgage default demands in line with new FHFA guidelines.

Hugh Wood, Atlanta, Georgia

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The relevant portions of the EESA of 2008 and the HOPE of 2008 are reproduced below.

SEC. 110. ASSISTANCE TO HOMEOWNERS.
(a) Definitions- As used in this section--
(1) the term 'Federal property manager' means--
(A) the Federal Housing Finance Agency, in its capacity as conservator of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation;
(B) the Corporation, with respect to residential mortgage loans and mortgage-backed securities held by any bridge depository institution pursuant to section 11(n) of the Federal Deposit Insurance Act; and
(C) the Board, with respect to any mortgage or mortgage-backed securities or pool of securities held, owned, or controlled by or on behalf of a Federal reserve bank, other than mortgages or securities held, owned, or controlled in connection with open market operations under section 14 of the Federal Reserve Act (12 U.S.C. 353), or as collateral for an advance or discount that is not in default;
(2) the term 'consumer' has the same meaning as in section 103 of the Truth in Lending Act (15 U.S.C. 1602);
(3) the term 'insured depository institution' has the same meaning as in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); and
(4) the term 'servicer' has the same meaning as in section 6(i)(2) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605(i)(2)).
(b) Homeowner Assistance by Agencies-
(1) IN GENERAL- To the extent that the Federal property manager holds, owns, or controls mortgages, mortgage backed securities, and other assets secured by residential real estate, including multifamily housing, the Federal property manager shall implement a plan that seeks to maximize assistance for homeowners and use its authority to encourage the servicers of the underlying mortgages, and considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures.
(2) MODIFICATIONS- In the case of a residential mortgage loan, modifications made under paragraph (1) may include--
(A) reduction in interest rates;
(B) reduction of loan principal; and
(C) other similar modifications.
(3) TENANT PROTECTIONS- In the case of mortgages on residential rental properties, modifications made under paragraph (1) shall ensure--
(A) the continuation of any existing Federal, State, and local rental subsidies and protections; and
(B) that modifications take into account the need for operating funds to maintain decent and safe conditions at the property.
(4) TIMING- Each Federal property manager shall develop and begin implementation of the plan required by this subsection not later than 60 days after the date of enactment of this Act.
(5) REPORTS TO CONGRESS- Each Federal property manager shall, 60 days after the date of enactment of this Act and every 30 days thereafter, report to Congress specific information on the number and types of loan modifications made and the number of actual foreclosures occurring during the reporting period in accordance with this section.
(6) CONSULTATION- In developing the plan required by this subsection, the Federal property managers shall consult with one another and, to the extent possible, utilize consistent approaches to implement the requirements of this subsection.
(c) Actions With Respect to Servicers- In any case in which a Federal property manager is not the owner of a residential mortgage loan, but holds an interest in obligations or pools of obligations secured by residential mortgage loans, the Federal property manager shall--
(1) encourage implementation by the loan servicers of loan modifications developed under subsection (b); and
(2) assist in facilitating any such modifications, to the extent possible.
(d) Limitation- The requirements of this section shall not supersede any other duty or requirement imposed on the Federal property managers under otherwise applicable law.


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U.S. Housing and Foreclosure Prevention Act of 2008 (July 30, 2008)
H.R. 3221
TITLE IV--HOPE FOR HOMEOWNERS
SEC. 1401. HOPE for Homeowners Act of 2008

SEC. 1402. ESTABLISHMENT OF HOPE FOR HOMEOWNERS PROGRAM.
(a) Establishment- Title II of the National Housing Act (12 U.S.C. 1707 et seq.) is amended by adding at the end the following:

SEC. 257. HOPE FOR HOMEOWNERS PROGRAM.

(a) Establishment- There is established in the Federal Housing Administration a HOPE for Homeowners Program.
(b) Purpose- The purpose of the HOPE for Homeowners Program is--

(1) to create an FHA program, participation in which is voluntary on the part of homeowners and existing loan holders to insure refinanced loans for distressed borrowers to support long-term, sustainable homeownership;
(2) to allow homeowners to avoid foreclosure by reducing the principle balance outstanding, and interest rate charged, on their mortgages;
(3) to help stabilize and provide confidence in mortgage markets by bringing transparency to the value of assets based on mortgage assets;
(4) to target mortgage assistance under this section to homeowners for their principal residence;
(5) to enhance the administrative capacity of the FHA to carry out its expanded role under the HOPE for Homeowners Program;
(6) to ensure the HOPE for Homeowners Program remains in effect only for as long as is necessary to provide stability to the housing market; and
(7) to provide servicers of delinquent mortgages with additional methods and approaches to avoid foreclosure.

(c) Establishment and Implementation of Program Requirements-
(1) DUTIES OF THE BOARD- In order to carry out the purposes of the HOPE for Homeowners Program, the Board shall--'(A) establish requirements and standards for the program; and'(B) prescribe such regulations and provide such guidance as may be necessary or appropriate to implement such requirements and standards.
(2) DUTIES OF THE SECRETARY- In carrying out any of the program requirements or standards established under paragraph (1), the Secretary may issue such interim guidance and mortgagee letters as the Secretary determines necessary or appropriate.

(d) Insurance of Mortgages- The Secretary is authorized upon application of a mortgagee to make commitments to insure or to insure any eligible mortgage that has been refinanced in a manner meeting the requirements under subsection (e).

(e) Requirements of Insured Mortgages- To be eligible for insurance under this section, a refinanced eligible mortgage shall comply with all of the following requirements:

(1) LACK OF CAPACITY TO PAY EXISTING MORTGAGE-
(A) BORROWER CERTIFICATION-
(i) IN GENERAL- The mortgagor shall provide certification to the Secretary that the mortgagor has not intentionally defaulted on the mortgage or any other debt, and has not knowingly, or willfully and with actual knowledge, furnished material information known to be false for the purpose of obtaining any eligible mortgage.
(ii) PENALTIES-
(I) FALSE STATEMENT- Any certification filed pursuant to clause (i) shall contain an acknowledgment that any willful false statement made in such certification is punishable under section 1001, of title 18, United States Code, by fine or imprisonment of not more than 5 years, or both.
(II) LIABILITY FOR REPAYMENT- The mortgagor shall agree in writing that the mortgagor shall be liable to repay to the Federal Housing Administration any direct financial benefit achieved from the reduction of indebtedness on the existing mortgage or mortgages on the residence refinanced under this section derived from misrepresentations made in the certifications and documentation required under this subparagraph, subject to the discretion of the Secretary.'

(B) CURRENT BORROWER DEBT-TO-INCOME RATIO- As of March 1, 2008, the mortgagor shall have had a ratio of mortgage debt to income, taking into consideration all existing mortgages of that mortgagor at such time, greater than 31 percent (or such higher amount as the Board determines appropriate).

(2) DETERMINATION OF PRINCIPAL OBLIGATION AMOUNT- The principal obligation amount of the refinanced eligible mortgage to be insured shall--
(A) be determined by the reasonable ability of the mortgagor to make his or her mortgage payments, as such ability is determined by the Secretary pursuant to section 203(b)(4) or by any other underwriting standards established by the Board; and'(B) not exceed 90 percent of the appraised value of the property to which such mortgage relates.

(3) REQUIRED WAIVER OF PREPAYMENT PENALTIES AND FEES- All penalties for prepayment or refinancing of the eligible mortgage, and all fees and penalties related to default or delinquency on the eligible mortgage, shall be waived or forgiven.

(4) EXTINGUISHMENT OF SUBORDINATE LIENS-
(A) REQUIRED AGREEMENT- All holders of outstanding mortgage liens on the property to which the eligible mortgage relates shall agree to accept the proceeds of the insured loan as payment in full of all indebtedness under the eligible mortgage, and all encumbrances related to such eligible mortgage shall be removed. The Secretary may take such actions, subject to standards established by the Board under subparagraph (B), as may be necessary and appropriate to facilitate coordination and agreement between the holders of the existing senior mortgage and any existing subordinate mortgages, taking into consideration the subordinate lien status of such subordinate mortgages.

(B) SHARED APPRECIATION-
(i) IN GENERAL- The Board shall establish standards and policies that will allow for the payment to the holder of any existing subordinate mortgage of a portion of any future appreciation in the property secured by such eligible mortgage that is owed to the Secretary pursuant to subsection (k).'(ii) FACTORS- In establishing the standards and policies required under clause (i), the Board shall take into consideration--'(I) the status of any subordinate mortgage;'(II) the outstanding principal balance of and accrued interest on the existing senior mortgage and any outstanding subordinate mortgages;'(III) the extent to which the current appraised value of the property securing a subordinate mortgage is less than the outstanding principal balance and accrued interest on any other liens that are senior to such subordinate mortgage; and'(IV) such other factors as the Board determines to be appropriate.

(C) VOLUNTARY PROGRAM- This paragraph may not be construed to require any holder of any existing mortgage to participate in the program under this section generally, or with respect to any particular loan.

(5) TERM OF MORTGAGE- The refinanced eligible mortgage to be insured shall--'(A) bear interest at a single rate that is fixed for the entire term of the mortgage; and'(B) have a maturity of not less than 30 years from the date of the beginning of amortization of such refinanced eligible mortgage.

(6) MAXIMUM LOAN AMOUNT- The principal obligation amount of the eligible mortgage to be insured shall not exceed 132 percent of the dollar amount limitation in effect for 2007 under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) for a property of the applicable size.

(7) PROHIBITION ON SECOND LIENS- A mortgagor may not grant a new second lien on the mortgaged property during the first 5 years of the term of the mortgage insured under this section, except as the Board determines to be necessary to ensure the maintenance of property standards; and provided that such new outstanding liens (A) do not reduce the value of the Government's equity in the borrower's home; and (B) when combined with the mortgagor's existing mortgage indebtedness, do not exceed 95 percent of the home's appraised value at the time of the new second lien.

(8) APPRAISALS- Any appraisal conducted in connection with a mortgage insured under this section shall--'(A) be based on the current value of the property;'(B) be conducted in accordance with title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3331 et seq.);'(C) be completed by an appraiser who meets the competency requirements of the Uniform Standards of Professional Appraisal Practice;'(D) be wholly consistent with the appraisal standards, practices, and procedures under section 202(e) of this Act that apply to all loans insured under this Act; and'(E) comply with the requirements of subsection (g) of this section (relating to appraisal independence).

(9) DOCUMENTATION AND VERIFICATION OF INCOME- In complying with the FHA underwriting requirements under the HOPE for Homeowners Program under this section, the mortgagee shall document and verify the income of the mortgagor or non-filing status by procuring (A) an income tax return transcript of the income tax returns of the mortgagor, or(B) a copy of the income tax returns from the Internal Revenue Service, for the two most recent years for which the filing deadline for such years has passed and by any other method, in accordance with procedures and standards that the Board shall establish.

(10) MORTGAGE FRAUD- The mortgagor shall not have been convicted under Federal or State law for fraud during the 10-year period ending upon the insurance of the mortgage under this section.

(11) PRIMARY RESIDENCE- The mortgagor shall provide documentation satisfactory in the determination of the Secretary to prove that the residence covered by the mortgage to be insured under this section is occupied by the mortgagor as the primary residence of the mortgagor, and that such residence is the only residence in which the mortgagor has any present ownership interest.

[ remainder of statute redacted ]

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The Secretary of the Treasury is Now CZAR over the EERA of 2008

The appointment of the next Secretary of the Treasury just became far more important. An almost unnoticed provision buried in the gargantuan EMERGENCY ECONOMIC STABILIZATION ACT of 2008 (“EESA”) (passed as H.R. 1424) grants the Secretary of the Treasury god-like powers to create, oversee and manage the 700bn entrusted to his care.

The EESA passed the Senate, 74 – 25, on October 1, 2008. After 150bn of Christmas Ornaments were attached as bait, the House reversed course and passed it 283-171 on October 3, 2008.

When Secretary Paulson originally begged the House of Representatives for 700bn with his little 3 page Bill, the House objected, partially, because there was “no judicial oversight” of the Secretary’s actions.

Unless I missed something, Congress has passed (in its final version) a Bill that substantially insulates the Secretary from any meaningful judicial review. Congress has created some oversight to oversee (vaguely) what he invests in, when he sells managed assets and how much money is returned to the Treasury (if any) from those sales.

His actions, though, may not be challenged except for “abuse of discretion.” No (read that “No”) form of challenge may be lodged against him in any Court on equitable grounds. No (read that “No”) challenge may be filed in any Court with regard to Sections 101 (Sec. 101. Purchases of troubled assets.), 102 (Sec. 102. Insurance of troubled assets.), 106 (Sec. 106. Management; sale of troubled assets; revenues and sale proceeds) and 109 (Sec. 109. Foreclosure mitigation efforts) of the Act.

His actions may only be set aside if they are “unconstitutional.” While possible to craft such a constitutional claim against a sitting US Secretary, its technically unlikely. It’s the standard that was used to overturn the District of Columbia’s gun ban. That only took 10 years of litigation to the United States Supreme Court to obtain review on the standard of “unconstitutional.” Thus, practically, there is no judicial review of the Secretary of the Treasury’s actions.

Any judicial action seeking an injunction, whether temporary or permanent, is stayed before it begins. Gee, that is almost a standard of protection I have never seen before. Injunctions – dead on arrival.

If you take his money $$$$$, you give up your right to sue. If you are one of the companies, banks or investment firms that wish to sell your toxic assets to the Secretary, you waive any right to sue when you accept his money. That was a cool; it would be interesting to see if private companies or private citizens could ever obtain such legal immunity.

With regard to the little homeowner’s mortgage and related foreclosure – no effect; no legal bar. Any claims that could have been asserted are still there. Section 109 is just a bulletproof vest for the Secretary of the Treasury, not anyone else.

Oh, and its not mutual. The Secretary can sue you, but you can’t sue him back.

What a deal. Don't you just love rushed legislation.

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Here is Section 119 of the EESA:

SEC. 119. JUDICIAL REVIEW AND RELATED MATTERS.
(a) Judicial Review-
(1) STANDARD- Actions by the Secretary pursuant to the authority of this Act shall be subject to chapter 7 of title 5, United States Code, including that such final actions shall be held unlawful and set aside if found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law.
(2) LIMITATIONS ON EQUITABLE RELIEF-
(A) INJUNCTION- No injunction or other form of equitable relief shall be issued against the Secretary for actions pursuant to section 101, 102, 106, and 109, other than to remedy a violation of the Constitution.
(B) TEMPORARY RESTRAINING ORDER- Any request for a temporary restraining order against the Secretary for actions pursuant to this Act shall be considered and granted or denied by the court within 3 days of the date of the request.
(C) PRELIMINARY INJUNCTION- Any request for a preliminary injunction against the Secretary for actions pursuant to this Act shall be considered and granted or denied by the court on an expedited basis consistent with the provisions of rule 65(b)(3) of the Federal Rules of Civil Procedure, or any successor thereto.
(D) PERMANENT INJUNCTION- Any request for a permanent injunction against the Secretary for actions pursuant to this Act shall be considered and granted or denied by the court on an expedited basis. Whenever possible, the court shall consolidate trial on the merits with any hearing on a request for a preliminary injunction, consistent with the provisions of rule 65(a)(2) of the Federal Rules of Civil Procedure, or any successor thereto.
(3) LIMITATION ON ACTIONS BY PARTICIPATING COMPANIES- No action or claims may be brought against the Secretary by any person that divests its assets with respect to its participation in a program under this Act, except as provided in paragraph (1), other than as expressly provided in a written contract with the Secretary.
(4) STAYS- Any injunction or other form of equitable relief issued against the Secretary for actions pursuant to section 101, 102, 106, and 109, shall be automatically stayed. The stay shall be lifted unless the Secretary seeks a stay from a higher court within 3 calendar days after the date on which the relief is issued.
(b) Related Matters-
(1) TREATMENT OF HOMEOWNERS' RIGHTS- The terms of any residential mortgage loan that is part of any purchase by the Secretary under this Act shall remain subject to all claims and defenses that would otherwise apply, notwithstanding the exercise of authority by the Secretary under this Act.
(2) SAVINGS CLAUSE- Any exercise of the authority of the Secretary pursuant to this Act shall not impair the claims or defenses that would otherwise apply with respect to persons other than the Secretary. Except as established in any contract, a servicer of pooled residential mortgages owes any duty to determine whether the net present value of the payments on the loan, as modified, is likely to be greater than the anticipated net recovery that would result from foreclosure to all investors and holders of beneficial interests in such investment, but not to any individual or groups of investors or beneficial interest holders, and shall be deemed to act in the best interests of all such investors or holders of beneficial interests if the servicer agrees to or implements a modification or workout plan when the servicer takes reasonable loss mitigation actions, including partial payments.

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Hugh Wood, Atlanta, Georgia

Big Money Turns Votes in House

Money Talks and 850B is BIG Money. The Senate swallowed the 700B Bailout Plan and Raised the House another 150B. The House now risks the anger of the Administration, the Senate and “some” of the American People if it fails to pass this – largest of all spending bills.

A lawyer friend of mine forwarded me his opinion of the 850B Senate Bailout. He asserts US Money will quickly find its way offshore. Interesting. I had not thought of that angle on this waste of taxpayer money.

He wrote:

The more I review the economics of the bill, the more dangerous it looks. Markets are Markets and they are operated by traders who are expert at finding deals. Also, and most importantly, markets are international.

It looks like most of the money in the bailout bill will be exported quickly out of the country.
The securities traders will be importing as much junk into the U.S. as they can. Then they will
swap it at above market prices to the Treasury and export the money internationally.

Money is like oil, it moves all around the world. If we just pump money into the system, the money will just be dilluted into the world market and make very little difference to Americans. This "Rescue" package fails for the same reason that the claims of North Slope drilling will bring oil prices down. The money is such a small sum when diluted into the
world market.

In the near term, we do not have to wait for the long term, the solution will fail dramatically
because it does not address the defaults here in the US.

The American people are going to be hopping mad when they wake up and see that their funding of the 700B leaves them broke, not fixed. The realization will probably be swift in coming. Certainly, before Christmas, if not by the end of this month.

Those who supported this bill will be very unpopular.


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David M. Herszenhorn of the New York Times published such a cogent review of the “No,” votes on the Senate vote, it is republished in its entirety below. It certainly reveals that this bill was a rush to judgment.


WASHINGTON - Senators who voted against the $700 billion financial rescue plan make up one of the most curious coalitions of lawmakers ever to share common ground.

It included arch-conservative Republicans like Jim DeMint of South Carolina, liberal Democrats like Russ Feingold of Wisconsin and Bernard Sanders, independent of Vermont, who is regarded as the Senate's resident socialist.

Taken together, the speeches of the 25 senators who voted against the plan on Wednesday amount to the Congressional equivalent of a dissenting opinion by the Supreme Court - impassioned, well reasoned, carefully articulated views on a landmark question of public policy that ultimately reflected the position of a minority of their fellow arbiters. If the bailout plan flops, they are the lawmakers who will be positioned to engage in a chorus of "I told you sos."
Their concerns spanned a panorama of issues: frustration over the lack of long-term regulatory changes in the legislation; alarm that $700 billion in taxpayer money would be at risk; anger that the Treasury secretary would not be subject to more stringent oversight; skepticism that executives of firms that seek help would face limits on their pay; and dismay that such an important bill was being rushed through Congress.

And, perhaps most pointedly, they expressed skepticism that the bailout proposal would be able to restore liquidity to the credit markets, prevent the collapse of additional banks and safeguard the economy from a long recession. "This package is just a very costly Band-Aid for big banks that will do very little to help patients who need major surgery," Senator Michael B. Enzi, Republican of Wyoming, said in his speech on the Senate floor. "Had Congress been able to use the regular committee process to craft a bipartisan and comprehensive legislation, the resulting bill may have gained my support," Mr. Enzi said. "Unfortunately, Congress has been pressured into passing this bill in two weeks by Treasury and Wall Street. A rescue plan of this scale requires a clear plan of action with a substantial chance of success. This plan has neither."

Some of the harshest criticism was leveled by Senator Richard C. Shelby of Alabama, the senior Republican on the Senate banking committee, who normally would have been his party's lead negotiator on the bailout bill but removed himself because he opposed the administration's proposal at its very core. "The choice we faced was between pursuing an informed response or panic," Mr. Shelby said. "Unfortunately, we chose panic and are now about to spend $700 billion on something we have not examined closely. Yes, in the end, we will have 'done something.' At the same time, however, we will have done nothing to determine whether it will accomplish anything at all."

Mr. Shelby, in his speech, laid out a modern history of the American housing, mortgage and securitization markets, explaining how a bubble in home values was fueled by loose lending standards, exotic mortgage products and complex financial instruments, pushed by financial firms that were leveraged heavily to maximize profits.

And in many ways, he was already dishing out "I told you sos." "We did not get to where we are today by accident, it was a path we chose," he said. "My warnings about the risk of basing credit decisions on well-intended social mandates rather than sound, fact-based underwriting were dismissed. My concerns about the inadequacy of the regulatory structure put in place in the financial modernization legislation went unacknowledged. My efforts to ensure that bank capital standards were designed to ensure safety and soundness, rather than industry concerns, were conducted largely alone."

Mr. Sanders, the Vermont independent, complained that the bill did not put any limits on the types of distressed debt the Treasury could buy, that it did not provide enough oversight, that it did not include adequate provisions to limit home foreclosures, that it did not really limit executive pay at firms that seek help.

"Under this bill, the C.E.O.'s and the Wall Street insiders will still, with a little bit of imagination, continue to make out like bandits," Mr. Sanders said. He said the bill also did not do anything to prevent financial institutions from becoming "too big to fail," effectively leaving open the potential need for future bailouts.

Mr. Sanders also said he could not fathom giving Treasury Secretary Henry M. Paulson Jr. such broad authority over so much money. "Maybe I am the only person in America who thinks so, but I have a hard time understanding why we are giving $700 billion to the secretary of the Treasury, who is the former C.E.O. of Goldman Sachs, which, along with other financial institutions, actually got us into this problem," he said. "Maybe I am the only person in America who thinks that is a little bit weird, but that is what I think."

He added: "This bill does not address the major economic crises we face - growing unemployment, low wages and the need to create decent-paying jobs, rebuilding our infrastructure and moving us to energy efficiency and sustainable energy."

In one of the more remarkable colloquies of the day's discourse, Senator Jeff Sessions, Republican of Alabama, and one of the most conservative members of Congress, took to the floor to express solidarity with Mr. Sanders. "I would like to say to Senator Sanders a couple things," Mr. Sessions said. "First, I think it is indeed breathtaking that this Senate would authorize basically one person with very little real oversight, a Wall Street maven himself, and allocate $700 billion in America's wealth, which I would have to say would be the largest single authorization of expenditure in the history of the Republic."

Mr. Sessions added: "So I have to say, fundamentally, I think we have not done a good enough job in creating an oversight mechanism that will work, so I am not going to vote for the bill; I am not."

Senator Bill Nelson, Democrat of Florida, said he opposed the bill because it did not do enough to help average Americans. "This bill sends a message to Wall Street that if they play fast and loose in the name of short-term profits, the government will actually make up for their losses," Mr. Nelson said. "And the bill does very little to help individual homeowners. Until we stabilize the housing market, which is the underlying ability to restructure the economy from this crisis - until we stabilize the housing market, and until we stem the record number of foreclosures, our market simply is not going to improve."

Mr. Nelson continued: "The bottom line is, ultimately, this bill forces taxpayers to bail out investment banks that caused the crisis in the first place, and it does nothing to address the real problem, which is home foreclosures." © The New York Times, October 2, 2008.

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Hugh Wood, Atlanta, Georgia

Largest Spending Bill in History of World Passes Senate :: Irresponsible.

In perhaps what was or may become the largest spending bill in this history of the World, the Senate passed HR 1424 (the 700B Bailout; now, 850B) 74-25. Constitutionally, spending Bills are required to be introduced into the House. However, the Senate attached the Bailout Rescue Bill to an existing House Bill, HR 1424, and will send it back to the House for passage.

There is no PDF available for the 450 page Senate Bill at this time, however, the Associated Press summarized the Bill as follows:

[T]he Senate added $100 billion in tax breaks for businesses and the middle class, plus a provision Republicans advocated to raise, from $100,000 to $250,000, the cap on federal deposit insurance. They were also cheering a decision Tuesday by the Securities and Exchange Commission to ease rules that force companies to devalue assets on their balance sheets to reflect the price they can get on the market. The heart of the bill, and the opposition to it, remained the same. It would enable the government to spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions. [ * * * ] [T]he package would extend several tax breaks popular with businesses. It would keep the alternative minimum tax from hitting 20 million middle-income Americans, and provide $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana. [ * * * ] Other provisions added by the Senate include a measure to require large companies' health plans to give equal treatment to mental health or addiction if they cover such illnesses. [ * * * ] Associated Press, Oct 1, 2008.

The following Presidential Candidates voted for HR 1424:

YES Votes:

DE: Biden (D) - Yes
AZ: McCain (R) - Yes
IL: Obama (D) - Yes

Georgia Senators voted:

GA: Chambliss (R), Isakson (R) - Yes

[69 other Senators voted Yes]

NO Votes:

The following Senators voted No.

AL: Shelby (R), Sessions (R)
CO: Allard (R)
FL: Nelson (D)
ID: Crapo (R)
KS: Brownback (R), Roberts (R)
KY: Bunning (R)
LA: Landrieu (D), Vitter (R)
MI: Stabenow (D)
MS: Cochran (R), Wicker (R)
MT: Tester (D)
NC: Dole (R)
ND: Dorgan (D)
OR: Wyden (D)
SC: DeMint (R)
SD: Johnson (D)
VT: Sanders (I)
WA: Cantwell (D)
WI: Feingold (D)
WY: Enzi (R), Barrasso (R)

The passage of this Bill is wholly irresponsible; no Senator and no human had time to read this 450 page massive, bloated disaster prior to pushing it to the floor. The passage of this bill is a harbinger of the coming Socialism creeping into every crevice of the United States.

Hugh Wood, Atlanta, Georgia