7/27/2019 Why.judges.are.Scowling.at.Banks NYtimes.com 2013-09-28

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Business Day

Fair Game

Why Judges Are Scowling at BanksByGRETCHEN MORGENSONPublished: September 28, 2013

LAST week, for the first time since the financial crisis, the government faced off in courtagainst a major bank over lending practices during the mortgage mania. Lawyers for theJustice Department contend that Countrywide Financial, a unit of Bank of America,misrepresented the quality of mortgages it sold to Fannie Mae and Freddie Mac, the taxpayer-owned mortgage finance giants, starting in 2007. Fannie and Freddie incurred gross losses of$850 million on the defective loans and net losses of $131 million, the government said.

Bank of America disagrees. Its lawyers say that Countrywide did not defraud Fannie or Freddie.

This case is undoubtedly big, but it is only one of many mortgage-related matters inching through thejudicial system. And what is notable about some of the lower-profile matters is the tone and tack thatfederal judges are taking in their rulings. District court judges are not generally known as flamethrowers,but some seem to be losing patience with the banks.

For decades leading up to theforeclosuredebacle, plaintiffs lawyers say, judges generally took the sideof lenders when borrowers came to court complaining of problematic lending or predatory loanservicing. Many judges still do. But some are getting tough, perhaps having seen too many examples ofdubious bank behavior.

Maybe the judges are tired of the diet of baloney sandwiches the banks have been feeding them, said

April Charney, a foreclosure defense lawyer who for years represented troubled borrowers atJacksonville Area Legal Aidin Florida. She is now in private practice.

Two recent rulings one in New York involving Bank of America and one in Massachusetts involvingWells Fargo serve as examples. In the Wells Fargo case, a ruling on Sept. 17 by Judge William G.Young of Federal District Court was especially stinging. In it, he required Wells Fargo to provide himwith a corporate resolution signed by its president and a majority of its board stating that they standbehind the conduct of the banks lawyers in the case.

The case involved a borrower named Joseph Henning who fell behind on his mortgage, which hereceived from Wachovia, an entity later absorbed by Wells Fargo. In a suit filed against Wells Fargo inMay 2009, Mr. Henning contended that the loan was predatory.

Judge Young agreed with the banks argument that federal laws pre-empted the state-law remedies Mr.Henning was seeking. But he did so reluctantly, calling it a win based on a technicality.

Then he chastised the bank. The disconnect between Wells Fargos publicly advertised face and itsactual litigation conduct here could not be more extreme, the judge wrote. A quick visit to WellsFargos Web site confirms that it vigorously promotes itself as consumer-friendly, he continued, a farcry from the hard-nosed win-at-any-cost stance it has adopted here.

If Wells Fargo does not supply the corporate resolution within 30 days of the ruling, the case will go to ajury trial, the judge said.

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7/27/2019 Why.judges.are.Scowling.at.Banks NYtimes.com 2013-09-28

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Mary Eshet, a spokeswoman for Wells Fargo, called the judges remarks in the ruling inflammatoryand unsubstantiated, and added: We believe Judge Young should follow the law which he recognizesand finalize his own judgment in this case. The bank is asking an appellate court to require the judge toenter his dismissal order without the corporate resolution.

Valeriano Diviacchi, the lawyer for the borrower, said he had never seen a ruling requiring a corporateresolution as Judge Youngs did. Mr. Diviacchi said that he didnt know why the judge made the ruling

but that the judge appeared to want the case to be heard by a jury of Mr. Hennings peers, people whomay have had their own experiences with questionable bank practices.

Judge Young is one of the few judges who will refer matters to juries even when a cause of actiondoes not entitle a party to a jury right because he believes in it as a foundation of the justice systemand a democratic society, Mr. Diviacchi said.

The second case arose after Edwin Ramos and Michelle Ava Stouber-Ramos filed for bankruptcy andhad the first and second mortgage on their Tampa, Fla., condominium discharged by the court. That kindof discharge protects a borrower from any attempts to collect the debts as a personal liability.

Bank of America received notice of the discharge in September 2010. But in spring 2012, the bank began sendingletters to the Ramoses, saying their $26,991 second mortgage was seriously delinquent and demanding thatthey pay the amount owed immediately. Otherwise, the bank said, it would proceed with collection action.

According to Michael H. Schwartz, a lawyer in White Plains who represented the borrowers, Mr. Ramosstarted getting three phone calls a day from the bank, demanding repayment. When Mr. Ramos advisedthe banks representatives that the debt had been expunged in a bankruptcy proceeding, he was told toobad, according to a court filing.

The phone calls and letters continued even after Mr. Schwartz went back to court to ask that Bank ofAmerica be sanctioned for illegal attempts to collect the debt. During this time, Bank of America soldthe servicing rights on the first mortgage to another company, which soon began sending its own

demand letters to the Ramoses.

This month, the matter came before Robert D. Drain, a federal bankruptcy judge in New York. JudgeDrain found Bank of America in contempt of the debt discharge order protecting the Ramoses andrequired the bank to pay Mr. Schwartzs legal bills in the case. The judge also ordered the bank to pay$10,000 a month in sanctions to the Ramoses until it stopped making the repayment demands.

Judge Drain acknowledged that it wasnt a lot of money to Bank of America. But, he said, he hoped that itslawyers would get the message. This is not just a stupid mistake by the bank, the judge said. This is a policy.A Bank of America spokeswoman said the bank was working to resolve the courts issues andresearching and investigating what transpired.

But Mr. Schwartz said the Ramos case was just one of several in which he represented homeowners who werepursued by Bank of America over discharged debts. In another of his cases, court filings show that a homeownerreceived 105 phone calls and four threatening letters from the bank. I believe the bank has made a conscious decisionthat it is less expensive to pay sanctions than to change its internal processes, he said. This problem is nationwide.

Judges who take a more aggressive stance against the banks in such cases are doing what they can tohold these institutions accountable. It may not seem like a lot, but it is progress.

Source: http://NYtimes.com/2013/09/29/business/why-judges-are-scowling-at-banks.html

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