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Ah, The Loan Modification Game Goes On… Mandelman Reports on the Front Lines Once Agein (Is Anyone Besides Us Getting Serously Tired of This? Banks Tell Borrower to Stop Payments to ‘be consdiered’ then Enforces Default and Foreclosure…)

11 Nov

ah me, well we can only say, we just have to indulge ourselves once in a while…

Violations? Banks? Lost Documents? Fraudulent documents? Diversity Jurisdiction? Hmmm Unfair Business Practice? And we do not even get in to the issue of being 90 days late as a preregquisite means we destroy our credit in order to ‘comply’ with the bank’s schedule.

Immoral, unethical, fraudulent? No, really – we’re sure you are kidding…

Ended in default? Foreclosure? ha ha ha. no kidding.

Chief Judge Gonzalez calls WaMu’s Conduct “Immoral, Unethical, Oppressive, Unscrupulous or Substantially Injurious to Consumers” (You go, Your Honor.)


That’s Chief Judge E. Irma Gonzalez above.

Irma E. Gonzalez, Chief Judge of the United States District Court, Southern District of California, in granting a plaintiff’s motion for a Temporary Restraining Order, stopped Washington Mutual or “WaMu” from foreclosing on the plaintiff’s home.

In her view, the bank’s conduct appears to be “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers,” which means that it satisfies California’s Unfair Competition Law (“UCL”) “unfair” prong 2.  In addition, she wrote that “a reasonable consumer is likely to rely on representations by a bank’s agent; thus, such conduct also violates the UCL’s “fraudulent” practices prong.

So, here’s the story and the legal long and short of it…

The plaintiff, Kaveh Khast, apparently bought a home in La Jolla, California in April of 2006 and took out a mortgage with WaMu.  Court documents say that Khast made all payments on time and as agreed for two years, but in May of 2008, contacted WaMu to request that loan be restructured.

According to Khast, the WaMu representative said that WaMu would modify his loan but only if he was in default, so he should stop making payments on his loan.  So, he did.  He didn’t make a payment for 90 days and then he called WaMu back asking to be considered for a loan modification.

WaMu mailed out the loan modification documents, and Khast completed and returned them to WaMu along with all of the requested supporting documentation.  Khast followed up with WaMu approximately a week later and a WaMu representative confirmed receipt of Khast’s loan modification documents, also saying that “an agent would be assigned to handle his request, but that the process of assigning that agent would take approximately one to two months.”

One to two months?  Is that as close as they can pin it down.  Even my cable company can tell me whether to expect the guy in the morning or afternoon.  One to two months is like describing the suspect as being six to twelve feet tall and weighing 200 to 400 pounds.  Okay, so can you guess what happened next?

Well, after two months had gone by, and Khast had not heard from WaMu, he called the bank to see what was up.  Not surprisingly to anyone familiar with this process, he was told that his application and supporting documentation were missing and that he would have to reapply.  And so he did… immediately sending a second application to WAMU via overnight mail.

Thirty days passed and wouldn’t you know it, no call from WaMu once again, so Khast called the bank again to inquire as to whether they had lost his paperwork once again, or were just planning to lose it again in the future.  Okay, that was sarcastic, but come on… how ridiculous does this crap have to get before someone says that’s enough?

This time Khast was told that the Federal Trade Commission had issued a cease and desist order against WAMU and that defendant JPMorgan Chase Bank (“JPM Chase”) had assumed all of WAMU’s assets and liabilities.  I’m assuming he meant the FDIC, but what do I know, that’s what the court documents said, the FTC.

PlainKhast then contacted JPM Chase, and a JPM Chase representative told him that… in harmony this time if you please… his loan modification application was missing and that he needed to submit a third set of documents.  This time Khast hired someone to help him and the guy he hired was successful at obtaining a trial modification for Khast, who began making his trial payments as specified by the bank.

Here’s where it starts to get good…

At some point during the trial period, Khast called the JPM Chase agent assigned to his loan modification to ask about the status of his property insurance and taxes.  The guy he spoke with at JPM Chase told him that his documents were once again lost and that he’d have to resubmit everything in order to apply.

So, once again he did, only this time since Khast had hired someone to handle it for him, that guy resubmitted everything on behalf of Khast.  Can you guess what happened next?  Come on, I bet you can… just think about it.  A third party is now helping Khast, so what would JPM Chase, or any of the other banks do at this point in order to make sure that all third parties are viewed as being “scammers?”

Right… they quickly denied Khast’s application and issued a Notice of Trustee’s Sale for the Property.

Woohoo!  Beautifully executed by JPM Chase!  Flawless work… a ‘10’ on the lying scumbag scale!  I love these guys!

Now, tell the truth… I’m not saying that this is what happened next, but what if I told you that the next thing that happened was that Khast bought a handgun and shot a banker in the head, would you really be surprised, or even opposed?  I’m telling you, that what’s coming, and it’s going to be like the guy who shot the muggers in the NYC subway and became a folk hero.

There’s no chance that I’ll be on that jury, because there’s no chance of me voting to convict, unless the penalty is an afternoon spent picking up trash in the park.  Anything stiffer than that and I’m voting to send the man home to his family.  One less banker in the world, so what?  Like one less member of Al-Qaeda running around, as far as I’m concerned.

Okay, so maybe not… exactly.  I’m not in favor of anyone shooting anyone… ever.  But come on… I’m trying to make a point here… I can’t believe this is allowed to go on, over and over and over again.  At a certain point someone has to say something, right?

(Hey President Obama… oh, never mind.  Go debate the Bush tax cuts… quack, quack.)

Court documents went on to say that Khast has requested that JPM Chase peovide him with something that shows why he’s been declined or some explanation of something and… “JPM Chase has refused to comply with any of Plaintiff’s requests.”

Well, Bravo once again, JPM Chase!  And allow me to venture a guess or two… you guys at Chase are “overwhelmed” with requests for loan modifications… you’re busy… friends came in unexpectedly from out of town… you just can’t hire people to meet the demand… or wait… I know… Mr. Khast never filled out the paperwork correctly.  Are any of those close?

Okay, so the “legal standard” that must be met here, in order for Khast to be granted a preliminary injunction is that he must demonstrate that

1. He is likely to succeed on the merits; and…

2. He is likely to suffer irreparable harm in the absence of preliminary relief; and…

3. That the balance of equities tips in his favor; and…

4. That an injunction is in the public interest 3.

In a moment we’ll return to see what Chief Judge Gonzalez had to say about Mr. Khast’s case.  But first a brief message from one of our sponsors…

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Okay, we’re back… Go ahead, Your Honor… give ‘em hell.

And for you readers that are actually lawyers, should you be longing for that “28 U.S.C. § 1332. Case 3:10-cv-02168-IEG” type stuff, you’ll find it in footnotes at the end.  I removed it so the rest of us could get through it, you understand.

Chief Judge Gonzalez started out looking at the likelihood of success on the merits, and, God bless her, she found Khast’s case to be one that would likely succeed.  She said that, and I’m paraphrasing so I don’t fall asleep while I’m writing this…

1. Violations of California’s Unfair Competition Law (“UCL”), CAL. BUS. & PROF. CODE § 17200

Apparently, California’s unfair competition statute prohibits “any unlawful, unfair or fraudulent business act or practice 4.”  So, I like that.  But, she also said “because Section 17200 is written in the disjunctive, it prohibits three separate types of unfair competition, as follows.

(For the record, I don’t know what “written in the disjunctive” means either, so no one feel bad.  All I can tell you is that in grammar, which is a subject I know at least a little bit about, it means a term that sets up a contrast or opposing ideas, as in the use of the word “but”.  Like as in… I’m broke, but I’m comfortable.  But other than that I have no idea what she’s talking about.)

(1) Unlawful Acts or Practices… the worst kind, I would think.

Because Khast is a California resident, and defendant, JPM Chase, is incorporated in Delaware, and because the amount in controversy exceeds $75,000, it appeared to Judge Gonzalez that this case was properly before the court based on diversity jurisdiction 5.   So, that’s good, right?

(2) Unfair Acts or Practices, and that’s gotta’ be considered a gimme, I would think.

(3) Fraudulent Acts or Practices 6.

By proscribing “unlawful” acts or practices, “Section 17200 ‘borrows’ violations of other laws and treats them as unlawful practices independently actionable 7.”

But she mad more to say, mostly about items (2) and (3)… I think… don’t hold me to it, get a lawyer, for heaven’s sake.  If you don’t know one, don’t look online or in the Yellow Pages, just write to me and I’ll tell you whom I know and like… Lord knows it’s got to be better than looking online. (mandelman@mac.com).  Or don’t… it’s your call and I don’t have a dog in this race, as they say… I’m just offering to help.

“When an action is brought by a consumer against the creditor, as is the case here, a broader definition of the word “unfair” applies than when an action is between direct competitors. In this context, an “unfair” business practice occurs “when it offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers 8.”

And there’s more…

“The term “fraudulent” as used in Section 17200 “does not refer to the common law tort of fraud” but only requires a showing members of the public “are likely to be deceived. 9”  “Unless the challenged conduct ‘targets a particular disadvantaged or vulnerable group, it is judged by the effect it would have on a reasonable consumer 10”.

And more still…

“Claims grounded in fraud, including those alleged under Section 17200, must be pled with particularity under Rule 9(b) 11. “In cases of corporate fraud, however, the pleading standard is relaxed since the circumstances may make it difficult to attribute particular fraudulent conduct to each defendant as an individual. Rule 9(b) serves to give defendants notice of the specific fraudulent conduct against which they must defend 12”.

Plaintiff claims that, around May 12, 2008, a representative of Defendant WaMu instructed him to cease making the scheduled payments and to default on his loan, and that if Plaintiff complied 13, WAMU would restructure his loan. Plaintiff’s defaulting on the loan enabled Defendants to begin non-judicial foreclosure proceedings, culminating with the scheduled sale of the Property on October 27, 2010 14.

Taking these allegations as true, the conduct by WaMu appears to be “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers,” and thus satisfies the UCL’s “unfair” prong 15. Moreover, a reasonable consumer is likely to rely on representations by a bank’s agent; thus, such conduct also violates the UCL’s “fraudulent” practices prong 16.

Plaintiff has stated that he possesses documents, which support his contention that Defendant WaMu instructed Plaintiff to purposefully enter into default and assured Plaintiff that, if he did so,

WaMu would restructure his loan. Accordingly, Plaintiff has demonstrated that at this time he is likely to succeed on the merits of his claim under the UCL.

Whew… that was tough to get through.  Next Judge Gonzalez went after the subject of “Promissory Estoppel,” which as I understand it, is sort of like “detrimental reliance”.  Like, if someone relied on a promise someone else made… to their determent.  But again… get a lawyer to figure this stuff out for sure.

Under the heading of Promissory Estoppel, Judge Gonzalez said the following:

Plaintiff alleges that on or about May 12, 2008, a representative of Defendant WaMu told Plaintiff that it would modify his mortgage, but only if Plaintiff was in default. The same WaMu representative, Plaintiff alleges, then “instructed Plaintiff to purposely stop making his mortgage payments in order to qualify 17”. Relying on that statement, Plaintiff ceased making the scheduled payments and defaulted on his loan. Defendants, however, did not restructure Plaintiff’s loan.  After Plaintiff defaulted on his loan, California law allowed Defendants to foreclose on Plaintiff’s property unless Plaintiff has defaulted on the loan 18.

“The doctrine of promissory estoppel ‘make[s] a promise binding under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange 19.”

“Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement 20.”

“The vital principle is that he who by his language or conduct leads another to do what he would not otherwise have done shall not subject such person to loss or injury by disappointing the expectations upon which he acted 21.” Where a party acts to its detriment in reliance on a promise, promissory estoppel affords that party a remedy, even where the promisor received no consideration for its promise 22.

In this case, Plaintiff has alleged (a) that Defendant WAMU promised to modify Plaintiff’s loan if Plaintiff stopped making payments and defaulted, (b) that Plaintiff relied on Defendant’s promise and therefore stopped making payments and entered default, and (c) that Defendant failed to modify Plaintiff’s loan as promised. Plaintiff has stated that he possess documents to support this claim, and he has thus shown that he is likely to succeed on the merits of his promissory estoppel claim.

So, Judge Gonzalez accepted the promissory estoppel aspect, as a result of JPM Chase telling him to stop making his payments in order to get his loan modified.  All of the banks tell people not to make their payments all the time, if they’re applying for a modification.  Every day and all the time. Where do you think that idea came from, if not from the banks?

Personally I think there’s been lots of promissory problems here… way beyond just telling Khast to stop making his payments in order to get his loan modified.  In my mind, WaMu has broken every sort of promise not only to Khast, but to our society, and the result of their behavior cost us taxpayers untold billions.

From predatory lending to accounting and securities fraud… I’m not going to back up my statement with details here, but if someone feels like debating the point, go ahead and leave a comment to that affect and take your shot.  It’s your funeral, as they say.

Moving on to the issue described as “Likelihood of Irreparable Harm,” Judge Gonzalez said the following:

A plaintiff seeking a temporary restraining order or preliminary injunction must demonstrate that “irreparable injury is likely in the absence of an injunction 23.”  This requires a plaintiff to demonstrate more than the “possibility” of irreparable harm.  If the foreclosure sale of Plaintiff’s Property proceeds on October 27, 2010, as scheduled, Plaintiff will lose his home. Losing one’s home through foreclosure is an irreparable injury 24.  Plaintiff has thus demonstrated the likelihood of irreparable injury absent judicial intervention.

My God, aren’t we almost done?  Yes, don’t worry… I checked below and it’s almost over.

On the topic of the “Public Interest,” here’s what the Honorable had to say…

A plaintiff seeking a temporary restraining order or preliminary injunction must demonstrate that an injunction is in the public interest 25.

There is a strong interest in accurately resolving ownership of real property 26. Because Plaintiff has demonstrated likelihood of success on the merits, Plaintiff has shown that the public interest favors granting his request for a temporary restraining order.

I like the way this woman thinks.  Sure she uses a little too much squiggle-squiggle-§-Id-no punctuation-legalese, but she’s a Chief Judge so you have to forgive her that, right?  I do, anyway.  You go, Your Honor… I’m digging what you’re saying.  But, let’s wrap it up, okay… it’s only a TRO… kidding…. Just kidding, Your Honor.  Take as much time as you need.

Last up on the Judge’s agenda was the “Balance of Hardships” issue.  And here she is, one more time… The Honorable Judge Irma Gonzalez:

In order to obtain injunctive relief, a plaintiff must establish that “the balance of equities tips in his favor 27.” The district court “must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief 28.”

“In exercising their sound discretion, courts of equity should pay particular regard for the public consequences in employing the extraordinary remedy of injunction 29.”  The balance of hardships weighs in Plaintiff’s favor. If the sale of Plaintiff’s Property proceeds as scheduled, Plaintiff will lose his home. Even if Defendants were ultimately to prevail, a temporary restraining order will only force them to delay the sale of the Property by a matter of days.

Damn straight, Your Honor, damn straight.  And what’s a couple of days, when they won’t even be able to resell the house for a couple of years?  And by then who knows, maybe they’ll be sued out of business or in prison.  A man can dream, can’t he?

After that, all she wrote was the following:

CONCLUSION

The Court GRANTS Plaintiffs’ motion for a temporary restraining order, and HEREBY ORDERS the following:

(1) Defendants are ordered to refrain from foreclosing upon and selling Plaintiff’s home until the Court can hold a hearing on whether a preliminary injunction should issue.

(2) Plaintiff shall personally serve this Order upon Defendants forthwith.

(3) Additionally, the clerk is instructed mail copies of this Order to JPMorgan Chase Bank and to Washington Mutual Bank at 10790 Rancho Bernardo Rd., San Diego, CA 92127-9011.

(4) Defendant shall file a responsive pleading on or before Wednesday, November 3,

2010.

(5) Plaintiff’s request for preliminary injunction shall be heard on Wednesday, November 10, 2010 at 3:00 p.m.

DATED: October 26, 2010.

_______________________________

IRMA E. GONZALEZ, Chief Judge

United States District Court

And she signed it on the line above.

Well, fabulous work, Judge Gonzalez.  I sure hope the other judges are paying attention, because we need you now more than ever.  With Congress locked in mortal combat over whether to repeal Bush tax cuts, and our president taking a bath, both figuratively and literally, for all I know, we’re in need of a little prudence from a jurist or two.

Well, I got that done just in the nick of time it appears.  I’ll be watching to see what happens tomorrow.  And I promise to let you all know… Until then, I am

Most sincerely and legally yours,

Mandelman

Mandelman out.

Okay lawyer people… here are those footnotes I know you can’t live without.  In the matter of:

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

KAVEH KHAST,

Plaintiffs,

vs.

WASHINGTON MUTUAL BANK; JP

MORGAN BANK; CALIFORNIA

RECONVEYANCE COMPANY,

Defendants.

CASE NO: 10-CV-2168-IEG (JMA)


ORDER GRANTING PLAINTIFF’S

MOTION FOR A TEMPORARY

RESTRAINING ORDER

*1 California’s Unfair Competition Law (“UCL”), CAL. BUS. & PROF. CODE § 17200.

*2 See Casa Blanca, 159 Cal. App. 4th at 530; McDonald, 543 F.3d at 506.

*3 Winter v. Nat. Res. Def. Council, Inc., — U.S. —, 129 S.Ct. 365, 374 (2008). Injunctive relief is “an

extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to

such relief.” Id. at 375-76.

*4 Cal. Bus. & Prof. Code § 17200 (2009).

*5 28 U.S.C. § 1332. Case 3:10-cv-02168-IEG -JMA Document 11 Filed 10/26/10 Page 3 of 8.

*6 Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 83 Cal. Rptr. 2d 548, 561 (Cal. 1999).

*7 Id. at 539-40.

*8 See People v. Casa Blanca Convalescent Homes, Inc., 159 Cal. App. 4th 509, 530 (1984), abrogated on other grounds in Cel-Tech, 83 Cal. Rptr. 2d at 565 & n.12; accord McDonald v. Coldwell Banker, 543 F.3d 498, 506 (9th Cir. 2008).

*9 Puentes v. Wells Fargo Home Mortg., Inc., 72 Cal. Rptr. 3d 903, 909 (Ct. App. 2008) (quoting Saunders v. Superior Court, 33 Cal. Rptr. 2d 438, 441 (Ct. App. 1994).

*10 Puentes, 72 Cal. Rptr. 3d at 909 (quoting Aron v. U-Haul Co. of Cal., 49 Cal. Rptr. 3d 555, 562 (Ct. App. 2006)).”

*11 See Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (“We have specifically ruled that Rule 9(b)’s heightened pleading standards apply to claims for violations of the . . . UCL”).

*12 625 3rd St. Assoc., L.P. v. Alliant Credit Union, 633 F.Supp.2d 1040, 1049-50 (N.D. Cal. 2009) (citing *13 Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir.2001).” Case 3:10-cv-02168-IEG -JMA Document 11 Filed 10/26/10 Page 4 of 8.

*14 See CAL. CIV. CODE § 2924 (California law only permits foreclosure proceedings after the debtor enters default); Castillo v. Skoba, No. 10-CV-1838-BTM, 2010 WL 3986953, *2 (S.D. Cal. Oct. 8, 2010) (citing CAL. CIV. CODE § 2924) (“The power of sale in a nonjudicial foreclosure may only be exercised when a notice of default has first been recorded.”); In Re Henry, 266 B.R. 457, 472 n.14 (C.D. Cal. 2001) (citing CAL. CIV. CODE § 2924) (“Under California law, a secured creditor has no right to commence foreclosure proceedings unless the debtor is in default.”).

*15 See Casa Blanca, 159 Cal. App. 4th at 530; McDonald, 543 F.3d at 506.

*16 See Puentes, 72 Cal. Rptr. 3d at 909.

*17 (Doc. No. 1 at ¶¶ 22.)

*18 CAL. CIV. CODE § 2924.

*19 Garcia v. World Sav., FSB, 107 Cal. Rptr. 3d 683, 692 (Ct. App. 2010) (quoting Youngman v. Nev. Irrigation Dist., 70 Cal. 2d 240, 249 (1969)); accord Raedeke v. Gibralter Sav. & Loan Ass’n, 10 Cal. 3d 665, Case 3:10-cv-02168-IEG -JMA Document 11 Filed 10/26/10 Page 5 of 8 672 (1974).

*20 Youngman, 10 Cal. 3d at 249.

*21 Garcia, 107 Cal. Rptr. 3d at 692 (internal quotation marks and citations omitted).

*22 See Garcia, 107 Cal. Rptr. 3d at 692 (citing Wade v. Markwell & Co., 118 Cal. App. 2d 410, 420 (1953)).

*23 Winter, 129 S.Ct. at 375 (emphasis in original).

*24 See Alcaraz v. Wachovia Mortgage FSB, 592 F.Supp.2d 1296, 1301 (E.D. Cal. 2009) (“Clearly, loss of a home is a serious injury.”).

*25 Winter, 129 S.Ct. at 374. Plaintiffs bear the initial burden. Stormans, Inc. v. Selecky, 586 F.3d 1109, 1139 (9th Cir. 2009) (citing Winter, 129 S.Ct. at 378). Case 3:10-cv-02168-IEG -JMA Document 11 Filed 10/26/10 Page 6 of 8.

*26 See DaSilva v. Wells Fargo Bank, N.A., No. 3:10-cv-00381, 2010 WL 3910139, at *7 (D. Nev. Oct. 1, 2010) (“[The] public interest in the prevention of improper non-judicial foreclosures is great.”); Perry v. Nat’l Default Servicing Corp., No. 10-CV-03167, 2010 WL 3325623. at *6 (N.D. Cal. Aug. 20, 2010) (nothing that preventing a party from proceeding with a foreclosure sale to which it is entitled does not serve the public interest).

*27 Winter, 129 S.Ct. at 374.

* 28 Id. at 376 (quoting Amoco Production Co. v. Village of Gambell, Alaska, 480 U.S. 531, 542 (1987).

*29 Winter, 129 S.Ct. at 376-77 (quoting Weinberger v. Romero-Barcelo, 456 U.S. 305

 

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