As millions of homeowners across the country struggle to save their homes from foreclosure, attention has increasingly turned to the sloppy practices of banks initiating these foreclosures. In some cases homeowners are fighting back with their own lawsuits to save their homes, while states attorney generals and federal regulatory agencies are investigating bank practices and threatening action. HPP and its private co-counsel are litigating one such case, Gewecke v. US Bank, et al, currently pending in federal district court in Minnesota. This case could potentially go far to stop the practice of banks cutting corners in the foreclosure process.
In this case, the Geweckes are challenging the bank’s practice of relying on “A to D Assignments.” As a result of the securitization of mortgage loans, mortgages are typically repeatedly assigned to multiple entities between the origination of the loan and the stage where they may be foreclosed. At the time of foreclosure, in order to establish a complete chain of title justifying the right to foreclose, a bank would normally indicate the chain of transfer from the originator A to B and then from B to C and then from C to D (usually a trust). However, because of a failure to properly maintain and document a proper chain of title, banks often attempt to paper over the gaps in transfer by simply executing one assignment of the mortgage, an “A to D” assignment which skips the middle steps. The Gewecke’s mortgage illustrates some of the problems with this scheme ; the A to D assignment the bank is relying on involves an alleged assignment from entity A at a point in time when entity A no longer was in business, and also involves an assignment to the trust, entity D, at a date when the trust was already closed and could no longer accept assignments.
In June 2011, the US Magistrate issued two key rulings in the case, mostly positive for the Geweckes. The Magistrate recommended that the Judge deny the defendant US Bank’s motion to dismiss, rejecting a number of legal defenses by the bank. Also pending was the plaintiffs’ motion to amend the complaint, to convert the case into a putative class action, and to add federal RICO claims (providing triple damages for racketeering activity). The Magistrate approved the addition of the RICO claims to the complaint, but denied the motion to add class action allegations, expressing concern that the class definition was overly broad. The Magistrate did, however, give permission for plaintiffs to renew their motion in the future to add class claims, thus providing plaintiffs with the opportunity to address the Court’s concerns in a revised complaint. Plaintiffs have now done that, and at this writing (August 2011), a new motion to amend is pending, as is the bank’s appeal of the Magistrate’s ruling on the motion to dismiss. To see the Magistrate’s June rulings, click here.