Barbara Forde on the Steinberger Case, Part 2

Posted by Christine Springer

This is Part 2 of Barbara Forde's guest post on the Steinberger case, a huge win for homeowners in Arizona. You can read Part 1 here.

Here's Barbara:

With that foundation, below are what I believe to be the most important parts of Steinberger for litigants in Arizona and hopefully elsewhere:

1) Steinberger debunks the magical incantation of “show-me-the-note” which banks/servicers/trustees needed only to utter, and borrower lawsuits would magically disappear.

Up until the Steinberger decision, court after court dismissed my claims, either misunderstanding them altogether, or pretending to, saying they were “show-me-the-note.” But I never argued that Article 3 of the UCC applied. My argument was, “enforce the contracts.” They clearly contain several conditions precedent which must first be satisfied before an entity can initiate and conduct foreclosure. Litigants must carefully phrase their allegations to track the language in the loan documents, to avoid the “show-me-the-note” law.

2) Borrowers in default may state a claim by carefully alleging facts which demonstrate that no defendant has standing to initiate or conduct a foreclosure, as explained in detail, above. A deed of trust may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation the deed of trust secures, that is, the note. The contracts reveal the identity of that that entity; it is the one who took the note by transfer and is entitled to payment.

3) Borrowers who have been toyed with by their servicers, and have evidence of negligent or intentional acts in the loan modification process which satisfy the requirements of a claim under the Good Samaritan Doctrine, or Negligent Performance of an Undertaking as the legal doctrine is actually named, should withstand a motion to dismiss that claim.

4) A breach of contract claim can be stated against those claiming the right to enforce the contracts, by arguing that no defendant received a writing from the Lender declaring a default and electing to foreclose, and that therefore the trustee has no way of knowing that there has been a default which would allow the trustee to initiate a trustee’s sale. A breach of contract claim is important because, if successful, the borrower can recover attorney’s fees in the action. Be forewarned, however, that if unsuccessful, the defendants will argue the same against the borrower.

5) The trustee under the deed of trust cannot hide behind A.R.S. § 33-807(E). Steinberger affirms that the trustee has duties and obligations under the deed of trust, and the borrower also has standing to inquire into and raise objections about the process by which the trustee has been substituted.

6) A borrower who was duped into agreeing to a “pick-a-payment” note can state a claim for unconscionability if their situation satisfies the criteria.

7) A claim can be stated for payment or discharge of the note by third parties, if a borrower has specific information of a loss sharing or similar agreement between, for instance, the FDIC and any entity which took over loans held by a failed financial institution.

8) A borrower may state a claim against entities which record false documents against the property under A.R.S. § 39-161, which is a class 6 felony.

Any borrower who wants to seek assistance in Court, should be very careful to allege in great detail, everything they can about their loan, its terms, and what the banks/servicers/trustee has written to them, told them, and how they have been treated. One attorney I litigated against, called my complaints “Russian novels.” If you have ever read Dostoevsky or Tolstoy, you get his meaning. But that is what is necessary to survive a motion to dismiss in Arizona, and you have a story to tell. Even though this is supposed to be a notice pleading state, more (quality allegations) is almost always better.

The Defendants have now filed a Petition for Review with the Arizona Supreme Court, which will hopefully affirm what the Court of Appeals has done. Ms. Steinberger is currently considering a Cross-Petition on her Quiet Title claim, the dismissal of which was affirmed.

Footnotes:

1) The same allegations should be made on a Fannie Mae or Freddie Mac loan. Both entities freely admit on their websites that they do not hold loans; they buy loans and place them into “mortgage securities” sold in “global capital markets” and recycle the proceeds.

2) Many of the Trusts are governed by New York law; the PSA will state which state’s laws apply.

Christine Springer is not an attorney and this post is not intended to be legal advice.