FULL Mortgage Payoff Rejected, Broken Entry (2), FORECLOSURE JUDGEMENT REVERSED…PRICELESS! Fed. Deposit Ins. Corp., as Receiver of WAMU v. TRAVERSARI, 2010 Ohio 2406 – Ohio: Court of Appeals, 11th Dist., Geauga 2010

2010-Ohio-2406

Federal Deposit Insurance Corporation, as Receiver of Washington Mutual Bank, Plaintiff-Appellee,
v.
Robert Traversari, et al., Defendants-Appellants.

No. 2008-G-2859.

Court of Appeals of Ohio, Eleventh District, Geauga County.

May 28, 2010.

Karen L. Giffen and Kathleen A. Nitschke, Giffen & Kaminski, L.L.C., 1300 East Ninth Street, #1600, Cleveland, OH 44114 and Donald Swartz, Lerner, Sampson & Rothfuss, P.O. Box 580, Cincinnati, OH 45210-5480 (For Plaintiff-Appellee).

Edward T. Brice, Newman & Brice, L.P.A., 214 East Park Street, Chardon, OH 44024 (For Defendants-Appellants).

OPINION

COLLEEN MARY O’TOOLE, J.

{¶1} Appellants, Robert Traversari (“Traversari”) and B & B Partners (“B & B”), appeal from the August 5, 2008 judgment entry of the Geauga County Court of Common Pleas, granting summary judgment in favor of appellee, Washington Mutual Bank, and entitling appellee to a judgment and decree in foreclosure.

{¶2} In 1994, appellant Traversari borrowed $190,000 from Loan America Financial Corporation which was memorialized by a promissory note and further secured by a mortgage on property located at 9050 Lake-in-the-Woods Trail, Bainbridge Township, Geauga County, Ohio. Appellant Traversari obtained the loan individually and/or in his capacity as the sole member and principal of appellant B & B, a real estate based company. The mortgage at issue was subsequently assigned to appellee.

{¶3} On January 8, 2007, appellee filed a complaint in foreclosure against appellants and defendants, JP Morgan Chase Bank, N.A., Charter One Bank, N.A., Jesse Doe, and Geauga County Treasurer. In count one of its complaint, appellee alleges that it is the holder and owner of a note in which appellant Traversari owes $149,919.96 plus interest at the rate of 7.75 percent per year from September 1, 2006, plus costs. In count two of its complaint, appellee alleges that it is the holder of a mortgage, given to secure payment of the note, which constitutes a valid first lien upon the real estate at issue. Appellee maintains that because the conditions of defeasance have been broken, it is entitled to have the mortgage foreclosed. Appellee indicated that appellant B & B may have claimed an interest in the property by virtue of being a current titleholder.

{¶4} Appellants filed an answer and counterclaim on February 16, 2007. In their defense, appellants maintain that appellee failed to comply with Civ.R. 10(D) and is estopped from asserting a foreclosure by its waiver of accepting payment. According to their counterclaim, appellants allege the following: on or about September 25, 2006, appellant Traversari sent a check in the amount of $150,889.96 to appellee for payment in full on the loan, which included the principal of $149.919.96 plus $970 of interest; on or about November 17, 2006, appellee issued a new home loan statement to appellant Traversari indicating the amount due was $5,608.95; appellant Traversari contacted appellee stating that a check had been sent for payment in full; appellee failed to respond; appellant Traversari mailed a check to appellee in the amount of $155,000; no stop payment was issued on the first check; because the house was vacant, appellant Traversari went to check the residence on December 26, 2006, and discovered that it had been broken into; an orange placard was placed on the premises indicating that a representative from appellee would secure the home; appellant Traversari immediately purchased new lock sets, secured the premises, and called and left a message for appellee to inform them to not enter the home; on December 31, 2006, electronic transmission was sent to appellee concerning the break-in and requested appellee to stop breaking into the home as well as to locate the two checks and to send a copy of a letter to a credit bureau; appellee did not respond; appellant Traversari then mailed a check from a separate account in the amount of the last payment demanded by appellee; appellee sent the $155,000 check back with a form letter to the address of the vacant property stating that personal checks were not accepted for payoff; appellee also rejected the $5,674.41 check; appellant Traversari then contacted appellee regarding the rejected checks; on January 11, 2007, appellant Traversari went to the home again, finding the kitchen door open, furnace running, new lock set taken out, garage door openers unplugged, and worse dings in the steel door; and appellant Traversari emailed appellee again, however, appellee indicated it could not give appellants any information because the case had been moved to foreclosure.

{¶5} Appellee filed a reply to appellants’ counterclaim on March 19, 2007, and an amended reply on September 6, 2007.

{¶6} According to the deposition of Maritza Torres (“Torres”), an employee of appellee in its senior asset recovery, loss prevention department, she was assigned to appellants’ case. Torres testified that appellee has no record of having received a check in the amount of $150,889.96 from appellant Traversari on September 25, 2006. However, she indicated that appellee received a check from appellant Traversari on September 30, 2006, in the amount of $102,538.74 (“Check #1”), which was returned to him due to appellee’s policy not to accept checks for early payoffs that are not certified funds.

{¶7} According to the deposition of Linda Rae Traversari (“Linda”), appellant Traversari’s wife, she is the handler of the family assets. Following the return of Check #1, appellee forwarded a delinquency letter to appellant Traversari in early November of 2006. Later that month, appellee sent a second default letter to him. Linda testified that on or around November 30, 2006, appellant Traversari sent another personal check for early payoff to appellee in the amount of $155,000 (“Check #2”). Appellee returned Check #2 with a letter explaining that noncertified funds are not accepted for early payoff. Linda stated that on January 2, 2007, appellant Traversari sent a third personal check via certified mail to appellee in the amount of $5,674.41 (“Check #3”). By the time appellee received Check #3, the loan had been referred to foreclosure. Check #3 was returned to appellant Traversari as “insufficient.”

{¶8} On March 14, 2008, appellee filed a motion for summary judgment pursuant to Civ.R. 56(b). Appellants filed a response on April 21, 2008.

{¶9} In its July 3, 2008 order, the trial court found, inter alia, that appellee was within its legal rights to reject the personal checks; appellee had the right to institute and maintain the foreclosure because appellants did not cure their default; and appellee had the right to enter the premises. Thus, the trial court indicated that appellee’s motion for summary judgment would be granted in its favor as to all issues and claims against appellants upon appellee’s presentation of an appropriate entry to be provided to the court.

{¶10} Appellee filed a “Motion For Submission Of Its Entry Granting Motion For Summary Judgment And Decree In Foreclosure” on July 11, 2008, and an amended entry on July 21, 2008. Appellants filed objections to appellee’s proposed amended entry the following day.

{¶11} Pursuant to its August 5, 2008 “Amended Entry Granting Summary Judgment And Decree In Foreclosure,” the trial court granted summary judgment in favor of appellee, entitling appellee to a judgment and decree in foreclosure. The trial court ordered, inter alia, that unless the sums found due to appellee are fully paid within 3 days from the date of the decree, the equity of redemption shall be foreclosed, the property sold, and an order of sale issued to the Sheriff directing him to appraise, advertise, and sell the property. The trial court further ordered that the proceeds of the sale follow the following order of priority: (1) to the Clerk of Courts, the costs of the action, including the fees of appraisers; (2) to the County Treasurer, the taxes and assessments, due and payable as of the date of transfer of the property after Sheriff’s Sale; (3) to appellee, the sum of $149,919.96, with interest at the rate of 7.75 percent per annum from September 1, 2006 to February 29, 2008, and 7.25 percent per annum from March 1, 2008 to present, together with advances for taxes, insurance, and costs; and (4) the balance of the sale proceeds, if any, shall be paid by the Sheriff to the Clerk of Court to await further orders. It is from that judgment that appellants filed the instant appeal, raising the following assignment of error for our review:

{¶12} “THE TRIAL COURT ERRED TO THE PREJUDICE OF DEFENDANTSA-PPELLANTS IN ITS ORDER GRANTING IN PLAINTIFF-APPELLEE’S FAVOR AS TO ALL ISSUES AND CLAIMS AND AGAINST DEFENDANTS, AND ITS AMENDED ENTRY GRANTING SUMMARY JUDGMENT AND DECREE IN FORECLOSURE TO PLAINTIFF-APPELLEE AGAINST DEFENDANTS-APPELLANTS.”

{¶13} In their sole assignment of error, appellants argue that the trial court erred by granting summary judgment in favor of appellee, and entitling appellee to a judgment and decree in foreclosure.

{¶14} “This court reviews de novo a trial court’s order granting summary judgment.” Hudspath v. Cafaro Co., 11th Dist. No. 2004-A-0073, 2005-Ohio-6911, at ¶8, citing Hapgood v. Conrad, 11th Dist. No. 2000-T-0058, 2002-Ohio-3363, at ¶13. “`A reviewing court will apply the same standard a trial court is required to apply, which is to determine whether any genuine issues of material fact exist and whether the moving party is entitled to judgment as a matter of law.'” Id.

{¶15} “Since summary judgment denies the party his or her `day in court’ it is not to be viewed lightly as docket control or as a `little trial.’ The jurisprudence of summary judgment standards has placed burdens on both the moving and the nonmoving party. In Dresher v. Burt [(1996), 75 Ohio St.3d 280, 296,] the Supreme Court of Ohio held that the moving party seeking summary judgment bears the initial burden of informing the trial court of the basis for the motion and identifying those portions of the record before the trial court that demonstrate the absence of a genuine issue of fact on a material element of the nonmoving party’s claim. The evidence must be in the record or the motion cannot succeed. The moving party cannot discharge its initial burden under Civ.R. 56 simply by making a conclusory assertion that the nonmoving party has no evidence to prove its case but must be able to specifically point to some evidence of the type listed in Civ.R. 56(C) that affirmatively demonstrates that the nonmoving party has no evidence to support the nonmoving party’s claims. If the moving party fails to satisfy its initial burden, the motion for summary judgment must be denied. If the moving party has satisfied its initial burden, the nonmoving party has a reciprocal burden outlined in the last sentence of Civ.R. 56(E) to set forth specific facts showing there is a genuine issue for trial. If the nonmoving party fails to do so, summary judgment, if appropriate shall be entered against the nonmoving party based on the principles that have been firmly established in Ohio for quite some time in Mitseff v. Wheeler (1988), 38 Ohio St.3d 112 ***.” Welch v. Ziccarelli, 11th Dist. No. 2006-L-229, 2007-Ohio-4374, at ¶40.

{¶16} “The court in Dresher went on to say that paragraph three of the syllabus in Wing v. Anchor Media, Ltd. of Texas (1991), 59 Ohio St.3d 108 ***, is too broad and fails to account for the burden Civ.R. 56 places upon a moving party. The court, therefore, limited paragraph three of the syllabus in Wing to bring it into conformity with Mitseff. (Emphasis added.)” Id. at ¶41.

{¶17} “The Supreme Court in Dresher went on to hold that when neither the moving nor nonmoving party provides evidentiary materials demonstrating that there are no material facts in dispute, the moving party is not entitled a judgment as a matter of law as the moving party bears the initial responsibility of informing the trial court of the basis for the motion, `and identifying those portions of the record which demonstrate the absence of a genuine issue of fact on a material element of the nonmoving party’s claim.’ Id. at 276. (Emphasis added.)” Id. at ¶42.

{¶18} In the case at bar, the record establishes that appellant Traversari sent personal checks to appellee for payment on the loan at issue. However, appellee returned the checks with letters indicating they would not be accepted as payment because they were not certified, and foreclosure proceedings commenced.

{¶19} There is no genuine issue of material fact that appellants executed and delivered a note and mortgage to appellee. However, a genuine issue of material fact does exist with regard to the fact that appellant Traversari tendered the entire principal payment and appellee rejected it because the payment was made by personal check. See Chase Home Fin., LLC v. Smith, 11th Dist. No. 2007-P-0097, 2008-Ohio-5451, at ¶19. The dates and amounts of the personal checks are conflicting due to the testimony and/or evidence submitted by the parties.

{¶20} “A cause of action exists on behalf of a damaged mortgagor when, in conformity with the terms of his note, he offers to the mortgagee full payment of the balance of the principal and interest, and the mortgagee refuses to present the note and mortgage for payment and cancellation.” Cotofan v. Steiner (1959), 170 Ohio St. 163, paragraph one of the syllabus.

{¶21} Appellant Traversari did not place any conditions on the personal checks tendered to appellee. We note that “[t]he essential characteristics of a tender are an unconditional offer to perform, coupled with ability to carry out the offer and production of the subject matter of the tender.” Walton Commercial Enterprises, Inc. v. Assns. Conventions, Tradeshows, Inc. (June 11, 1992), 10th Dist. No. 91AP-1458, 1992 Ohio App. LEXIS 3081, at 5. (Emphasis sic.)

{¶22} “It is an implied condition of every contract that one party will not prevent or impede performance by the other. If he does prevent or impede performance, whether by his prior breach or other conduct, he may not then insist on performance by the affected party, and he cannot maintain an action for nonperformance if the promises are interdependent.” Fed. Natl. Mtge. Assns. v. Banks (Feb. 20, 1990), 2d Dist. No. 11667, 1990 Ohio App. LEXIS 638, at 8-9, citing 17 American Jurisprudence 2d, Contracts, Sections 425, 426.

{¶23} In the instant matter, paragraph 3 of the Open-End Mortgage provides:

{¶24} “3. Application of Payments. Unless applicable law provides otherwise, all payments received by Lender under paragraphs 1 and 2 shall be applied: first, to any prepayment charges due under the Note; second, to amounts payable under paragraph 2; third; to interest due; fourth, to principal due; and last, to any late charges due under the Note.”

{¶25} Here, there was no new note and mortgage, nor agreement for application of payments, when the mortgage at issue was subsequently assigned from Loan America Financial Corporation to appellee. Rather, it was the policy of appellee to require mortgagors to pay by certified check for any amounts over $5,000. According to appellee’s employee, Torres, she indicated that any amount over $5,000 not paid by certified funds puts the company at risk because it can take anywhere between 7 to 10 days for a personal check to clear. We note, however, that the mortgagee has up to 90 days to verify the sufficiency of the underlying funds before satisfying and releasing its recorded mortgage. R.C. 5301.36(B). In the instant case, it would have been reasonable for appellee to have either waited 7 to 10 days for appellant Traversari’s checks to clear or to have inquired with his bank, see, generally, Hunter Sav. Assn. v. Kasper (Sept. 25, 1979), 10th Dist. No. 78AP-774, 1979 Ohio App. LEXIS 11777, at 13, if there were sufficient funds before returning any of his 3 personal checks and commencing foreclosure proceedings.

{¶26} The lender in this case unilaterally refused the debtor’s payment by check due to itsinternal policy that an amount over $5,000 had to be made by certified check. The terms and conditions of the mortgage, however, do not impose such a requirement. Under paragraph 3 of the Open-End Mortgage, it appears the lender had an obligation to apply the payment tendered, by personal check or otherwise. Its refusal to present the check for clearance and apply the payment on the ground of internal policy appears to have violated the debtor’s rights.

{¶27} Construing the evidence submitted most strongly in favor of appellants, we must conclude that genuine issues of material fact remain. Again, a genuine issue of material fact exists with regard to the fact that appellant Traversari tendered the entire principal payment and appellee rejected it because the payment was made by personal check. Also, the dates and amounts of the personal checks are conflicting due to the testimony and/or evidence submitted by the parties. Thus, the trial court erred by granting appellee’s motion for summary judgment.

{¶28} For the foregoing reasons, appellants’ sole assignment of error is well-taken. The judgment of the Geauga County Court of Common Pleas is reversed and the matter is remanded for further proceedings consistent with this opinion. It is ordered that appellee is assessed costs herein taxed. The court finds there were reasonable grounds for this appeal.

Trapp, P.J., Rice, J., concur.

Defendants are not named parties to the instant appeal.

The matter was stayed. On November 26, 2008, the Federal Deposit Insurance Corporation was substituted for appellee Washington Mutual Bank. This court instructed the Clerk of Courts to correct the docket by removing “Washington Mutual Bank” and substituting “Federal Deposit Insurance Corporation, as Receiver of Washington Mutual Bank” as appellee in this appeal. The stay order automatically dissolved on August 29, 2009.

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Tracking Loans Through a Firm That Holds Millions: MERS

Kevin P. Casey for The New York Times: Darlene and Robert Blendheim of Seattle are struggling to keep their home after their subprime lender went out of business.

By MIKE McINTIRE NYTimes
Published: April 23, 2009

Judge Walt Logan had seen enough. As a county judge in Florida, he had 28 cases pending in which an entity called MERS wanted to foreclose on homeowners even though it had never lent them any money.

Into the Mortgage NetherworldGraphicInto the Mortgage Netherworld

MERS, a tiny data-management company, claimed the right to foreclose, but would not explain how it came to possess the mortgage notes originally issued by banks. Judge Logan summoned a MERS lawyer to the Pinellas County courthouse and insisted that that fundamental question be answered before he permitted the drastic step of seizing someone’s home.

Daniel Rosenbaum for The New York Times R. K. Arnold, MERS president, said the company helped reduce mortgage fraud and imposed order on the industry.

“You don’t think that’s reasonable?” the judge asked.

“I don’t,” the lawyer replied. “And in fact, not only do I think it’s not reasonable, often that’s going to be impossible.”

Judge Logan had entered the murky realm of MERS. Although the average person has never heard of it, MERS — short for Mortgage Electronic Registration Systems — holds 60 million mortgages on American homes, through a legal maneuver that has saved banks more than $1 billion over the last decade but made life maddeningly difficult for some troubled homeowners.

Created by lenders seeking to save millions of dollars on paperwork and public recording fees every time a loan changes hands, MERS is a confidential computer registry for trading mortgage loans. From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.

If MERS began as a convenience, it has, in effect, become a corporate cloak: no matter how many times a mortgage is bundled, sliced up or resold, the public record often begins and ends with MERS. In the last few years, banks have initiated tens of thousands of foreclosures in the name of MERS — about 13,000 in the New York region alone since 2005 — confounding homeowners seeking relief directly from lenders and judges trying to help borrowers untangle loan ownership. What is more, the way MERS obscures loan ownership makes it difficult for communities to identify predatory lenders whose practices led to the high foreclosure rates that have blighted some neighborhoods.

In Brooklyn, an elderly homeowner pursuing fraud claims had to go to court to learn the identity of the bank holding his mortgage note, which was concealed in the MERS system. In distressed neighborhoods of Atlanta, where MERS appeared as the most frequent filer of foreclosures, advocates wanting to engage lenders “face a challenge even finding someone with whom to begin the conversation,” according to a report by NeighborWorks America, a community development group.

To a number of critics, MERS has served to cushion banks from the fallout of their reckless lending practices.

“I’m convinced that part of the scheme here is to exhaust the resources of consumers and their advocates,” said Marie McDonnell, a mortgage analyst in Orleans, Mass., who is a consultant for lawyers suing lenders. “This system removes transparency over what’s happening to these mortgage obligations and sows confusion, which can only benefit the banks.”

A recent visitor to the MERS offices in Reston, Va., found the receptionist answering a telephone call from a befuddled borrower: “I’m sorry, ma’am, we can’t help you with your loan.” MERS officials say they frequently get such calls, and they offer a phone line and Web page where homeowners can look up the actual servicer of their mortgage.

In an interview, the president of MERS, R. K. Arnold, said that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies it brought to the mortgage trade. He said that far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.

“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”

About 3,000 financial services firms pay annual fees for access to MERS, which has 44 employees and is owned by two dozen of the nation’s largest lenders, including Citigroup, JPMorgan Chase and Wells Fargo. It was the brainchild of the Mortgage Bankers Association, along with Fannie MaeFreddie Mac and Ginnie Mae, the mortgage finance giants, who produced a white paper in 1993 on the need to modernize the trading of mortgages.

At the time, the secondary market was gaining momentum, and Wall Street banks and institutional investors were making millions of dollars from the creative bundling and reselling of loans. But unlike common stocks, whose ownership has traditionally been hidden, mortgage-backed securities are based on loans whose details were long available in public land records kept by county clerks, who collect fees for each filing. The “tyranny of these forms,” the white paper said, was costing the industry $164 million a year.

“Before MERS,” said John A. Courson, president of the Mortgage Bankers Association, “the problem was that every time those documents or a file changed hands, you had to file a paper assignment, and that becomes terribly debilitating.”

Although several courts have raised questions over the years about the secrecy afforded mortgage owners by MERS, the legality has ultimately been upheld. The issue has surfaced again because so many homeowners facing foreclosure are dealing with MERS.

Advocates for borrowers complain that the system’s secrecy makes it impossible to seek help from the unidentified investors who own their loans. Avi Shenkar, whose company, the GMA Modification Corporation in North Miami Beach, Fla., helps homeowners renegotiate mortgages, said loan servicers frequently argued that “investor guidelines” prevented them from modifying loan terms.

“But when you ask what those guidelines are, or who the investor is so you can talk to them directly, you can’t find out,” he said.

MERS has considered making information about secondary ownership of mortgages available to borrowers, Mr. Arnold said, but he expressed doubts that it would be useful. Banks appoint a servicer to manage individual mortgages so “investors are not in the business of dealing with borrowers,” he said. “It seems like anything that bypasses the servicer is counterproductive,” he added.

When foreclosures do occur, MERS becomes responsible for initiating them as the mortgage holder of record. But because MERS occupies that role in name only, the bank actually servicing the loan deputizes its employees to act for MERS and has its lawyers file foreclosures in the name of MERS.

The potential for confusion is multiplied when the high-tech MERS system collides with the paper-driven foreclosure process. Banks using MERS to consummate mortgage trades with “electronic handshakes” must later prove their legal standing to foreclose. But without the chain of title that MERS removed from the public record, banks sometimes recreate paper assignments long after the fact or try to replace mortgage notes lost in the securitization process.

This maneuvering has been attacked by judges, who say it reflects a cavalier attitude toward legal safeguards for property owners, and exploited by borrowers hoping to delay foreclosure. Judge Logan in Florida, among the first to raise questions about the role of MERS, stopped accepting MERS foreclosures in 2005 after his colloquy with the company lawyer. MERS appealed and won two years later, although it has asked banks not to foreclose in its name in Florida because of lingering concerns.

Last February, a State Supreme Court justice in Brooklyn, Arthur M. Schack, rejected a foreclosure based on a document in which a Bank of New York executive identified herself as a vice president of MERS. Calling her “a milliner’s delight by virtue of the number of hats she wears,” Judge Schack wondered if the banker was “engaged in a subterfuge.”

In Seattle, Ms. McDonnell has raised similar questions about bankers with dual identities and sloppily prepared documents, helping to delay foreclosure on the home of Darlene and Robert Blendheim, whose subprime lender went out of business and left a confusing paper trail.

“I had never heard of MERS until this happened,” Mrs. Blendheim said. “It became an issue with us, because the bank didn’t have the paperwork to prove they owned the mortgage and basically recreated what they needed.”

The avalanche of foreclosures — three million last year, up 81 percent from 2007 — has also caused unforeseen problems for the people who run MERS, who take obvious pride in their unheralded role as a fulcrum of the American mortgage industry.

In Delaware, MERS is facing a class-action lawsuit by homeowners who contend it should be held accountable for fraudulent fees charged by banks that foreclose in MERS’s name.

Sometimes, banks have held title to foreclosed homes in the name of MERS, rather than their own. When local officials call and complain about vacant properties falling into disrepair, MERS tries to track down the lender for them, and has also created a registry to locate property managers responsible for foreclosed homes.

“But at the end of the day,” said Mr. Arnold, president of MERS, “if that lawn is not getting mowed and we cannot find the party who’s responsible for that, I have to get out there and mow that lawn.”

Lehman sues JPMorgan for billions in damages: REUTERS

Jonathan Stempel

NEW YORK
Wed May 26, 2010 7:56pm EDT

The JP Morgan and Chase headquarters is seen in New York in this January 30, 2008 file photo. REUTERS/Shannon Stapleton

NEW YORK (Reuters) – Lehman Brothers Holdings Inc (LEHMQ.PK) on Wednesday sued JPMorgan Chase & Co (JPM.N), accusing the second-largest U.S. bank of illegally siphoning billions of dollars of desperately-needed assets in the days leading up to its record bankruptcy.

Hot Stocks

The lawsuit filed in Manhattan bankruptcy court accused JPMorgan of using its “unparalleled access” to inside details of Lehman’s distress to extract $8.6 billion of collateral in the four business days ahead of Lehman’s September 15, 2008, bankruptcy, including $5 billion on the final business day.

JPMorgan was Lehman’s main “clearing” bank, in which it acts as a go-between in Lehman’s dealings with other parties.

According to the complaint, JPMorgan knew from this relationship that Lehman’s viability was fast weakening, and threatened to deprive Lehman of critical clearing services unless it posted an excessive amount of collateral.

“With this financial gun to Lehman’s head, JPMorgan was able to extract extraordinarily one-sided agreements from Lehman literally overnight,” the complaint said. “Those billions of dollars in collateral rightfully belong to the Lehman estate and its creditors.”

Lehman also said JPMorgan officials including Chief Executive Jamie Dimon decided to extract the collateral after learning from meetings with Federal Reserve Chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson that the government would not rescue Lehman from bankruptcy.

In the widely expected lawsuit, Lehman and its official committee of unsecured creditors are seeking $5 billion of damages, a return of the collateral and other remedies.

JPMorgan spokesman Joe Evangelisti called the lawsuit “meritless,” and said the bank will defend against it.

Any money recovered could increase the payout to creditors. Lehman has also sued Barclays Plc (BARC.L) to recover an $11.2 billion “windfall” from the takeover of U.S. assets.

In March, a bankruptcy judge approved an accord providing for JPMorgan to return several billion dollars of assets to Lehman’s estate, but giving Lehman a right to sue further.

Lehman collapsed after letting its balance sheet swell through exposure to commercial real estate, subprime mortgages and other risky sectors. With $639 billion of assets, Lehman was by far the largest U.S. company to go bankrupt.

EXAMINER REPORT

In his March report on Lehman’s bankruptcy, court-appointed examiner Anton Valukas said Lehman could raise a “colorable claim” against JPMorgan over the collateral demands.

He nevertheless said JPMorgan could raise “substantial defenses” under U.S. bankruptcy law.

Evangelisti contended that “as the examiner’s report makes clear, it was the ill-advised decisions of Lehman and its principals to take on perilous leverage and to double down on subprime mortgages and overpriced commercial real estate — and not conduct by our firm — that led to Lehman’s demise.”

Lehman, though, maintained that JPMorgan extracted the collateral to “catapult” itself ahead of other creditors.

“A century ago, John Pierpont Morgan used his position atop the world of finance to shore up a teetering firm and rescue the nation from the brink of financial collapse,” the complaint said, referring to the Panic of 1907.

“A century later, when the nation faced another epic financial crisis, Morgan’s namesake firm stripped a faltering Lehman Brothers of desperately needed cash,” it added.

The case is In re: Lehman Brothers Holdings Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Reporting by Jonathan Stempel; Additional reporting by Matthew Goldstein; Editing by Phil Berlowitz, Bernard Orr,Gary Hill)

Judge Slashes ‘Fat Cat’ Bank’s Bill for Subpoenaed Documents

Mark Fass
New York Law Journal
December 28, 2009

A Brooklyn judge has rejected a bank’s request for $9,112 in costs for producing subpoenaed documents, calling the claim an example of the excess and greed among “fat cat bankers on Wall Street.”

JPMorgan Chase, a non-party in an action to confirm an arbitration award, sought 25 cents per page and $25 per hour for producing 18,248 pages of subpoenaed documents demanded by the petitioner.

In a blistering 11-page decision, Brooklyn Supreme Court Justice Arthur Schack granted JPMorgan Chase only $1,250.27, or about one-seventh of the amount the bank requested.

The judge quoted a recent interview of President Barack Obama on “60 Minutes” in which the president suggested that the greed of “fat cat bankers” played a role in the present recession.

“Clearly, Chase’s arbitrary $25.00 per hour … fee for the unsubstantiated 182 hours of research by person or persons unknown only helps to unjustly enrich ‘a bunch of fat cat bankers on Wall Street,'” Justice Schack wrote in Matter of Arbitration of Klein v. Persaud, 8007/09. “This Court is not a collection vehicle to further enrich already rich bankers.”

Schack called the bank’s CEO, James S. Dimon, the “fattest cat” at JPMorgan Chase, citing Dimon’s compensation of nearly $20 million in 2008.

Petitioner Abraham Klein initiated the underlying action to confirm a multimillion-dollar arbitration award against Christine Persaud and Caring Home Care Agency.

In July, Schack asked non-party JPMorgan Chase to submit an affirmation regarding its production expenses.

The bank claimed it provided Klein 18,248 pages of documents and requested $9,112 — $4,550 for locating and retrieving the documents and $4,562 for printing them.

In opposing JPMorgan Chase’s request, Klein called the bank’s demand “flawed and disingenuous.” He argued that the bank sought to be “rewarded for ignoring court orders” and reimbursed for pages it never produced. Klein also claimed that JPMorgan Chase flooded his attorneys with “thousands” of documents they never requested.

JPMorgan Chase denied those allegations.

“Chase produced approximately 12,000 pages by [the] deadline set by the Court … The 12,000 pages are responsive to petitioner’s unequivocal and explicit demand for all documents for that account,” the bank contended in court papers. “Chase has also produced more than 6,000 pages of documents for the other four accounts listed in the June 12th subpoena.”

Schack sided with Klein.

First, the judge reduced the bank’s hourly fee from $25 to $6.55 — the minimum wage in Indiana, where the judge believed the work may have been done, at the time the documents were produced.

“[T]he Court … is guided by the principal that ‘[o]rdinarily, the retrieval and evaluation of documents should be done by the lowest-level person consistent with accurate and reliable identification of the material called for,'” Schack wrote.

The 182 hours worked by JPMorgan Chase employees therefore came to $1,192, not $4,562, the judge concluded.

In order to determine the compensation rate per page the bank copied, the judge “examined” the Web sites of “three major stationary suppliers” and determined that a case of Hammermill Copy Plus Paper, containing 10 reams (i.e., 5,000 sheets) lists for $44.99, or a little less than a penny per page.

Schack therefore awarded JPMorgan Chase one cent per page for paper, plus an additional two cents for “toner, copier maintenance and electricity.”

The judge also noted that of the 18,248 pages that JPMorgan Chase produced, the bank placed 16,317 pages online, as opposed to printing them. For those pages, the bank only deserved compensation for labor and not supplies, the judge wrote, calling the bank’s claim “disingenuous.”

At three cents per page for only 1,939 pages, instead of 25 cents per page for 18,248, the bank deserved $58.17, not $4,562, Schack concluded.

The judge ordered Klein to pay JPMorgan Chase a total of $1,250.27.

Michelle E. Tarson of Simmons, Jannace & Stagg represented Chase. The firm did not return calls for comment.

Paulino J. Salazar and Mendel Zilberberg of Mendel Zilberberg & Associates in Brooklyn represented Klein.

SENATE FINDS MASSIVE FRAUD WASHINGTON MUTUAL: SPECIAL DELIVERY FOR WAMU VICTIMS!

Senate finds Massive FRAUD in SHam-MU! WaMu has allegedly defrauded hundreds of thousands of homeowners with unfair, deceptive and perhaps illegal lending policies and practices. Many of these homeowners are now facing the possibility of or are in foreclosure.

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Another “HOME RUN” in Nassau, NY! Judge awards FREE home to woman after mortgage records lost: NEWSDAY

Originally published: May 6, 2010 8:47 PM
By SID CASSESE  sid.cassese@newsday.com

The house at 517 Pinebrook

Photo credit: Newsday / Karen Wiles Stabile | The house at 517 Pinebrook Ct. in West Hempstead, which a judge awarded to Corliss Gittens, free of any liens and mortgages because nobody opposed the action. (May 6, 2010)

A Lakeview woman got an early birthday present when a Nassau County State Supreme Court Justice awarded her the house she lives in, free and clear of any liens and mortgages because nobody opposed the action.

Tuesday, Corliss Gittens, who turned 48 Friday, received the award of her six-room ranch-style house at 517 Pinebrook Ct. from Justice John Galasso.

Gittens bought the house from her parents in late 2000. But when she mailed monthly checks to the mortgage company, Homeside Lending, the checks were never cashed, said Hempstead lawyer Fred Brewington, who represents Gittens. In 2001, Gittens was told by Homeside Lending officials that it could not locate evidence of the mortgage in its records.

“She had a mortgage and a deed. She went to a closing and purchased the house,” said Brewington. “She never stopped trying to find out to whom she should pay the mortgage because the uncertainty was making her distraught.”

Eventually, Gittens learned Homeside ceased to exist, and its parent company, SR Investments, was sold to Washington Mutual in 2002. Washington Mutual was in turn acquired by JPMorgan Chase in 2008. All of the companies, as well as the Federal Deposit Insurance Corporation, were named as respondents.

None opposed Gittens’ suit.

Brewington said he reached out to Chase on the issue, only to be told the bank knew nothing about it.

Michael Fusco, a spokesman for Chase in Manhattan, said the bank “has no comment at this time.”

Gittens did not want to be interviewed for the story, but Brewington quoted her as saying: “After so many years of existing in limbo, I am happy that I will have the resources of my property available to me.”

He said Gittens once sought a second mortgage, but failed to get it because no one could get any information on the existing one. He added that her case was filed to wipe out that mortgage.

County records show the 2009 property tax on the house as $7,667.44.

In his decision Galasso said: “The Court directs the Clerk of the County of Nassau in whose office the mortgage and note were presumably recorded on or about March 6, 2001, to mark the record of the debt secured by the mortgage canceled and discharged.”

County Clerk Maureen O’Connell said Thursday she got the order Thursday and will execute it immediately.

Bankruptcy Stalls ‘Extreme Makeover’ Foreclosure: WSJ

April 27, 2010, 1:30 PM ET

By Dawn Wotapka

Milton and Patricia Harper narrowly avoided foreclosure. Again.

Their 5,300-square-foot McMansion, built for the “Extreme Makeover” television show was set to be auctioned off in Atlanta earlier this month. But the Harpers averted that fate with a Chapter 13 bankruptcy filing–for the second time.

The couple had filed for their first Chapter 13 in early 2009, as foreclosure loomed on their supersized home. The bankruptcy halted the process. It’s possible that the family was unable to fulfill the payment plan set up under the bankruptcy and thus had to file again this year–a common occurrence says Jessica Gabel, a law professor with Georgia State University.

The Harpers didn’t return a call for comment. Lender JP Morgan Chase, which now needs court permission to proceed with a foreclosure sale, declined to comment.

As we’ve written, the Harper episode aired in the 2004-2005 season. The family’s modest home with septic-tank issues was replaced by a showpiece resembling an English castle. In addition to a new house, which they were given outright, the Harpers received a scholarship fund for their three sons.

Mortgage troubles came after the family used the house as collateral for a $450,000 loan, which was modified by Chase in 2008.

Meanwhile, the family still seems to be trying to raffle off the house. They’ve recently updating their raffle Web site, however, no auction date is listed.

“That is unusual,” said Ms. Gabel, the professor. “That doesn’t pass the smell test. They’re going to have to demonstrate to the court why they should proceed” with the raffle. Plus, she added, any post-bankruptcy petition income might have to go to creditors.