CASE STUDY 2
United States Nat'l Bank Ass'n v. Montesdeoca,
2013 N.J. Super. Unpub. LEXIS 2352, *16-22
Superior Court of New Jersey, Chancery Division, Bergen County
September 27, 2013, Argued; September 27, 2013, Decided
DOCKET No. BER-F-24093-12 CIVIL ACTION
In opposition to summary judgment, defendant relies on several arguments. The one of paramount concern is defendant's assertion of fraud. The gravamen of defendant's assertion is derived from his Certification which compellingly suggests genuine issues which militate [*17] against granting summary judgment.
Specifically, defendant offers the following narrative regarding the loan. Defendant, born in Ecuador in 1950, arrived in the United States in or around September 2002 with his wife and four adult sons. Having unsuccessfully run a flower shop in the United States, defendant assumed a position with a cleaning company earning $600 a week. In addition to this income, defendant asserts he earned approximately $5,000 annually by importing and selling flowers. Defendant later took a position as a driver earning $500 a week while his wife worked in a pharmacy earning $7.00 an hour. These facts are incorporated in this opinion not for any sentimental consideration but for their material significance to the loan instruments which underlie this litigation.
Prior to obtaining a loan, defendant asserts his family was paying $1,200 a month in rent to live in an apartment in a two-family house. Eventually, defendant sought to purchase a home to house his family. Defendant intended to take the mortgage in his name only as his wife had no credit history. Through a broker, defendant arranged to meet with Donald F. Mellay ("Mellay"), a branch manager of Wells Fargo. [*18] During this meeting, defendant's sons translated the conversation into Spanish as defendant was and is not fluent in English. Defendant asserts Mellay assured him a loan would be made available. Moreover, defendant asserts Mellay explained to him that Wells Fargo would finance the down payment. Eventually, defendant was preapproved for a $607,000 loan though, apparently to defendant's surprise, there were two loans. Defendant asserts it was explained to him by Mellay the second loan was in place of a down payment. The interest rates were discrepant with the first loan subject to a 7.375% rate and the second subject to a 14.000% rate. Defendant asserts Mellay said the rates "were only temporary".
Throughout his communications with Mellay, defendant asserts he was told "that if [defendant] paid on time for two years Wells Fargo would refinance the loan at a lower interest rate and [defendant's] payments would be reduced." (Def. Cert. at ¶ 36). At the closing on August 3, 2006, defendant asserts he was presented a "big pile" of mortgage documents all of which were in English. Defendant could not read them and he had not been provided copies prior to the closing which could have been translated. [*19] Present at the closing was a lawyer defendant had never met before who did not speak Spanish. The lawyer directed defendant to sign the papers though, defendant asserts, he neither read nor explained the contents of the papers to defendant.
Only upon reviewing a copy of the loan application with his present counsel did defendant come to learn his income had been listed at $10,150 a month. Defendant denies filling out the application and denies providing any such information, much less having earned a monthly income even close to $10,150. Defendant's current attorneys explained this is a "stated income" loan. Crucially, defendant asserts Wells Fargo "falsified my income and gave me a stated income loan". (Def. Cert. at ¶ 50). In addition to the monthly income term, defendant learned only by way of his current counsel of the "high closing costs" and a prepayment penalty.
Defendant asserts, operating on the belief after two years the interest rates and payments would decrease, he successfully made the mortgage payments during those first two years. Making timely and complete payments during those two years entailed struggle and sacrifice [*20] for defendant and his family. Defendant's certification describes the extent of this struggle including his family's contribution to the payments. His sons had to drop out of college because their tuition could no longer be afforded. Defendant's sons also acquired short term loans at high interest rates so they could lend defendant money. Additionally, defendant borrowed from credit cards in order to make payments. After 18 months, defendant asserts his son Oscar communicated with Mellay requesting the promised refinance. Mellay said he would inquire into the matter but never responded. Defendant attempted to refinance with Wells Fargo but was eventually and purportedly told he could not refinance because property values had declined. Defendant contends if not for the expected reduction in interest rate and payments, he would never have taken the loan. Thereafter, in 2008, defendant sought a loan modification submitting applications to Wells Fargo though never receiving a response. In 2009, falling behind on the mortgage payments, defendant again requested a loan modification which Wells Fargo granted in or around October 2009.
Upon consultation with current counsel, defendant was advised [*21] he should have been considered for a Housing Affordable Modification Program ("HAMP") loan modification under which his interest rate could be reduced to as little as 2.000%. However, he asserts the loan modification obtained was unaffordable. Defendant made payments pursuant to the modification until 2011. Defendant asserts Wells Fargo sent letters and called inviting him to apply for another loan modification. Throughout the process, defendant asserts he consistently provided documents to Wells Fargo which were repeatedly lost or which Wells Fargo claimed never to have received. Upon calling Wells Fargo for updates regarding the second loan modification, defendant or someone on his behalf was told the file was closed or in review. The present status of the second loan modification is unknown to defendant.
The forgoing information asserted by defendant provides a foundation for defendant's claim plaintiff violated the CFA and committed acts of actionable fraud. Specifically, defendant asserts plaintiff violated the CFA in misrepresenting that defendant could refinance the loan after two years. Moreover, in allegedly falsifying defendant's income, defendant asserts the loan was secured [*22] without regard to defendant's ability to repay. Lastly, he asserts he never requested nor knew the second loan, with its high interest rates, would be utilized to provide the required down payment and to pay "exorbitant" closing fees. Accordingly, defendant invokes the stigma of predatory lending ascribing insidiousness to plaintiff's behavior. Although defendant presents compelling information suggestive of possible fraudulent practices on the part of plaintiff, generalizations about the lending industry are not competently, nor persuasively, presented. Nonetheless, for the purpose of addressing plaintiff's motion, there is sufficient basis in defendant's position to deny summary judgment. This does not, however, address the substantive merit of the parties' positions.
United States Nat'l Bank Ass'n v. Montesdeoca, 2013 N.J. Super. Unpub. LEXIS 2352, *16-22
D. Pooling and Servicing Agreement/Third-Party Beneficiary
Having determined defendant survives plaintiff's motion for summary judgment, this court's attention turns to one of the other interesting aspects of this case, the Pooling and Service Agreement (the "PSA"). Defendant's Memorandum of Law provides a useful explanation of how PSAs work. The precise mechanics of securitization and the bundling of mortgages need not be detailed herein. However, defendant's concern that "the method and timing of the various transfers and assignments within the PSA framework is critical to establishing the ownership of a note and proving a chain of title" is noted. [*26] (Def. Mem. of Law at 10). Specifically, it is argued in opposition to plaintiff's motion for summary judgment, technical and procedural compliance with the PSA is not merely a formality but rather of substantive and critical importance. The threshold questions which then arise are: (1) if the fund received the Mortgage subsequent to the cutoff date, can plaintiff prosecute this action?; (2) does the defendant have standing to raise this issue?; and (3) if the defendant does not have standing, is defendant a third-party beneficiary to the PSA? While the court need not express an opinion as to how these questions ought to be answered, given plaintiff's status as the "holder" of a valid note is the linchpin of a foreclosure matter, if the matter proceeds to trial these questions will have to be addressed.
These issues are all the more [*27] troubling as there is a dearth of case law in New Jersey regarding these issues and only one unpublished Appellate Division case addresses these questions, which unfortunately holds no precedential value. See HSBC Bank U.S. v. Gomez, No. A-4194-11T4, 2013 N.J. Super. Unpub. LEXIS 62, 2013 WL 105303 (App. Div. Jan. 10, 2013); but see R. 1:36-3.
The Appellate Division in Gomez determined the defendants lacked standing [*28] to challenge a violation of a PSA as they were not parties to the trust. Moreover, it was determined the defendants were not third-party beneficiaries. In challenging the validity of the transfer, defendant asserts he does have standing and is a third-party beneficiary to a PSA instrument. Alternatively, even if defendant is not a third-party beneficiary, it is argued he can nonetheless challenge a void transfer, although how is not clear.
Among the challenges to plaintiff's motion for summary judgment, defendant argues plaintiff is not the "owner" or "holder" of the Note because plaintiff's Assignment of Mortgage did not satisfy the delivery requirements of a PSA. However, at oral argument, defendant's counsel was not prepared to assert which entity would be entitled to foreclose. Defendant notes, in distinguishing the instant matter from the facts of Gomez, the defendants in Gomez did not challenge the plaintiff's ownership or right to foreclose as they neither filed an answer nor responded to the foreclosure complaint brought against them. Moreover, they did not actively involve themselves in the litigation for years. In contrast, defendant has supplied a thorough response and demonstrated [*29] an active participation in this litigation. The most significant difference between Gomez and the instant matter is that the defendants in Gomez "never certified that the loan was "predatory" or in any way unfair, that they were told they need not defend the case or that they were lulled into inaction by Wells Fargo or plaintiff, or that the default was anything other than their fault." Gomez, supra, 2013 N.J. Super. Unpub. LEXIS 62, [WL] at 18-19. The same cannot be said for defendant in this matter who asserts a myriad of allegations which, if proven, might well challenge the transaction and pose intriguing issues concerning remedies.
Ultimately, however, Gomez allows plaintiff to bring this action and plaintiff correctly asserts it does present with a valid Assignment. Defendant, though, directs the court to decisions in other [*30] jurisdictions which evince a possible trend in support of defendant's position. States which have upheld the status of a foreclosure defendant as a third-party beneficiary to a PSA have done so on the basis that these mortgagors might not otherwise secure financing. This court is not obligated to consider these decisions as they have no precedential authority. Nonetheless, as this remains an undecided issue in New Jersey, it is worth acknowledging these decisions and allowing a full record to be developed.
United States Nat'l Bank Ass'n v. Montesdeoca, 2013 N.J. Super. Unpub. LEXIS 2352, *25-30
There is an intriguing question left unanswered; if defendant's proofs are found credible, [*34] what is the appropriate remedy? Surely, forgiveness of the entire loan seems not only draconian but without support in New Jersey case law. That issue, as with many others, shall be left for future consideration.
United States Nat'l Bank Ass'n v. Montesdeoca, 2013 N.J. Super. Unpub. LEXIS 2352, *33-34