Justia U.S. 6th Circuit Court of Appeals Opinion Summaries

Kentucky’s statutes require that assignment of a mortgage must be recorded within 30 days. Plaintiffs, landowners with mortgages, argued that, for purposes of that requirement, a transfer of a promissory note is an assignment of a mortgage securing the note, and must be recorded. The issue arose because of the use of the Mortgage Electronic Registration System (MERS), a private company that operates a national electronic registry to track servicing rights and ownership of mortgage loans. When a home is purchased, the lender obtains promissory note and a mortgage naming MERS as the mortgagee (as nominee for the lender and its successors). The borrower assigns his interest in the property to MERS, and the mortgage is recorded in local records with MERS as the named mortgagee. When the note is sold in the secondary mortgage market, the MERS database tracks that transfer. MERS remains the mortgagee of record, avoiding recording and other transfer fees and continues to act as an agent for the new owner of the note. The district court agreed with plaintiffs. The Sixth Circuit reversed. The text, structure, and purposes of Kentucky’s recording statutes (KRS 382.365(5)) indicate that transfer of a promissory note is not, itself, an assignment of a mortgage securing the note. View "Higgins v. BAC Home Loans Servicing, LP" on Justia Law

In 2005, Lee, a Sevierville contractor, owed a substantial debt to Whaley, for loans that financed houses being built by Lee. Whaley proposed to recruit straw buyers for sham purchases of the properties. Eight straw buyers were referred to Bevins, a mortgage broker with whom Whaley had previously dealt. Whaley prepared the contracts and set the prices. Bevins prepared loan applications that falsely inflated the buyers’ incomes and assets and stated that they would bring funds to closing. The closings were conducted by Kerley’s title company. Although none of the buyers brought funds to the closings, Kerley signed HUD-1 forms, indicating that they did. The properties later went into foreclosure. The lenders incurred substantial losses. Lee and Bevins pled guilty and agreed to cooperate. The judge denied Kerley’s motion to sever, concluding that proposed redactions to Whaley’s statement remedied potential violation of Kerley’s Confrontation Clause rights and held that Whaley was not entitled to introduce his own hearsay statements. Both were convicted of money laundering, conspiracy to commit wire fraud affecting a financial institution and bank fraud, wire fraud affecting a financial institution, bank fraud, and making a false statement to a financial institution. They were sentenced to 60 months and 48 months imprisonment, respectively, and ordered to pay $1,901,980.31 in restitution. The Sixth Circuit affirmed the convictions and Kerley’s sentence, rejecting challenges to the sufficiency of the evidence, evidentiary rulings, and the court’s refusal to sever. View "United States v. Whaley" on Justia Law

Plaintiffs obtained a home loan and granted a mortgage that was eventually assigned to Bank of America (BOA). Plaintiffs defaulted in 2007. In 2011, plaintiffs received a letter explaining the right to seek a loan modification. Plaintiffs sought assistance from NMCA; met with BOA’s counsel; provided information and forms prepared with help from NMCA; and were offered reduced payments for a three-month trial period. If all trial period payments were timely, the loan would be permanently modified. Plaintiffs allege that they made the three payments, but did not receive any further information, and that BOA returned two payments. BOA offered plaintiffs a permanent loan modification, instructing plaintiffs to execute and return a loan modification agreement. Plaintiffs do not allege that they returned the agreement. BOA never received the documents. BOA sent a letter informing them that because they were in default and had not accepted the modification agreement, a nonjudicial foreclosure would proceed. Notice was published. The property was sold at a sheriff’s sale. BOA purchased the property, and executed a quitclaim deed to Federal National Mortgage Association, which filed a possession action after the redemption period expired. Six months later, plaintiffs sued, claiming Quiet Title; violations of due process rights; and illegal/improper foreclosure and sheriff’s sale. The district court dismissed all claims. The Sixth Circuit affirmed, holding that the Michigan foreclosure procedure does not violate due process. View "Garcia v. Fed. Nat'l Mortg. Ass'n" on Justia Law

The Borrower defaulted on a nonrecourse Commercial Mortgage-Backed Securities (CMBS) loan secured by property located in Detroit. CMBS loans are packaged as a trust to attract investors; in return for nonrecourse liability, CMBA borrowers promise to refrain from certain financial behavior likely to increase the risk of default and bankruptcy; the loan at issue included a solvency clause. Michigan’s 2012 Nonrecourse Mortgage Loan Act applies retroactively to render solvency covenants in nonrecourse loans unenforceable, declaring them “an unfair and deceptive business practice . . . against public policy [that] should not be enforced.” The lender foreclosed. Purchaser bought the property at auction with a winning bid of $756,000, and, standing in the lender’s shoes and citing the solvency clause, sued Borrower and its guarantor to collect a $6 million deficiency. The district court granted summary judgment in favor of Borrower. The Sixth Circuit affirmed, agreeing that that the NMLA: rendered the solvency covenant in Borrower’s CMBS loan unenforceable; violated neither the Contract nor Due Process Clauses of the United States and Michigan Constitutions; and comported with Michigan’s constitutional provision mandating the separation of governmental powers. View "Borman, LLC v. 18718 Borman, LLC" on Justia Law

CLC’s principal, Erwin, was general counsel for the bank. CLC deferred invoicing the bank in 2008 when it fell on hard times. In 2009 the Office of Thrift Supervision put the bank into receivership. CLC claims that, days before the takeover, the bank granted it security interests in bank properties. CLC waited months to record attorney liens for the security interests. CLC sought $176,750 in deferred legal fees. The FDIC denied the claim. CLC initially denied possessing the original retainer agreement, claiming oral agreements, until, in 2013, Erwin produced a 1989 agreement. The district court granted the FDIC summary judgment, finding the evidence prejudicial and the delay not “substantially justified.” The fees arrangement did not comply with 12 U.S.C. 1823(e)’s documentation requirements and the security interests were similarly deficient and “taken in contemplation of” insolvency. The court rejected CLC’s argument that the statutory documentation requirements and the D’Oench doctrine (an estoppel rule shielding the FDIC from claims and defenses based on unwritten agreements that reduce bank assets) apply only to secret agreements affecting traditional banking transactions, like loans. The court acknowledged evidence indicating that Erwin and the bank may have backdated the security interests. The Sixth Circuit reversed; D’Oench and its statutory progeny do not apply to its legal services arrangement with the bank. View "Commercial Law Corp., P.C. v. Fed. Deposit Ins. Corp." on Justia Law

Kopko ran SFS in Michigan, providing financial transaction processing and electronic funds transfers to companies engaged in e-commerce, processing those transactions through its Fifth Third account, Fifth Third discovered that FBD was processing illegal gambling funds through that account and notified SFS that it was closing SFS’s account immediately. Losing this account crippled SFS’s ability to do business. SFS went bankrupt. Kopko telephoned FBD and spoke to Bastable, FBD’s vice-president for e-commerce. According to Kopko, Bastable said FBD did not have an account in SFS’s name. Months later SFS received a grand jury subpoena related to a federal investigation of the gambling transactions done in SFS’s name. When Kopko called Bastable again to discuss the subpoena, Bastable admitted that FBD had an account in SFS’s name and that the board of directors was aware of this account. In 2012, SFS sued FBD, Bastable, and FBD’s individual directors in federal court for negligence and fraud against. The district court dismissed. The Sixth Circuit affirmed that: answering the phone calls did not establish personal jurisdiction over individual defendants; FBD owed no duty of care to SFS because SFS was not a customer; and SFS failed to adequately plead a claim of fraud. View "SFS Check, LLC v. First Bank of De." on Justia Law

In 2006, Thompson signed a $354,800 mortgage note with AME as the lender. Several sections of the note and deed of trust noted AME’s intent to transfer the note. Its signature page contains a signed, undated stamp memorializing AME’s transfer to Countrywide and another signed, undated endorsement from Countrywide to blank. BOA purchased Countrywide and has the note. In 2012, BOA offered to short-sell her house in lieu of foreclosure. Thompson requested modification of her repayment terms under the HAMP program (Emergency Economic Stabilization Act, 12 U.S.C. 5201), that gives lenders incentives to offer modifications to borrowers with a payment-to-income ratio over 31%. Thompson claims that she complied with numerous document requests. BOA never granted her application. She sued BOA, Mortgage Electronic Registration Systems, and unidentified persons she believes to be the note’s true owners, claiming: that BOA falsely induced her to sign the mortgage by pretending it was an actual lender; that her title is clouded by the note’s transfer; and that BOA fraudulently induced her to seek modification, knowing it lacked authority to modify her terms or intending to drive her into foreclosure. The district court dismissed for failure to comply with pleading standards. The Sixth Circuit affirmed. View "Thompson v. Bank of Am., N.A." on Justia Law

After Stratton stopped making payments on her credit card, GE “charged off” Stratton’s $2,630.95 debt, as uncollectible. GE stopped charging Stratton interest. By charging off the debt and ceasing to charge interest GE could take a bad-debt tax deduction, I.R.C. 166(a)(2), and avoid the cost of sending Stratton statements. A year later, GE assigned Stratton’s charged-off debt to PRA, a “debt buyer.” Two years later, PRA filed suit in state court, alleging that Stratton owed interest during the 10 months after GE charged off her debt, before GE sold that debt, and that Stratton owed 8% interest rather than the 21.99% rate established in her contract with GE. The 8% rate is the default rate under Kentucky’s usury statute, KRS 360.010. Stratton filed a putative class action, alleging that PRA’s attempt to collect 8% interest for the 10-month period violated the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692, in that the 8% interest was not “expressly authorized by the agreement creating the debt or permitted by law,” that PRA had falsely represented the “character” of Stratton’s debt and the “amount” owed, and that PRA’s suit was a “threat” to take “action that cannot legally be taken.” The district court dismissed. The Sixth Circuit reversed. Under Kentucky law a party has no right to statutory interest if it has waived the right to collect contractual interest; any attempt to collect statutory interest when it is “not permitted by law” violates the FDCPA. View "Stratton v. Portfolio Recovery Assocs., LLC" on Justia Law

Between 2009 and 2012, Sunshine and Purdy, a Kentucky dairy farmer, entered into “Dairy Cow Leases.” Purdy received 435 cows to milk, and, in exchange, paid monthly rent to Sunshine. Purdy’s business faltered in 2012, and he sought bankruptcy protection. Sunshine moved to retake possession of the cattle. Citizens First Bank had a perfected purchase money security interest in Purdy’s equipment, farm products, and livestock, and claimed that its perfected security interest gave Citizens First priority over Sunshine with regard to the cattle. Citizens argued that the “leases” were disguised security agreements, that Purdy actually owned the cattle, and that the subsequently-acquired livestock were covered by the bank’s security interest. The bankruptcy court ruled in favor of Citizens, finding that the leases were per se security agreements. The Sixth Circuit reversed, noting that the terms of the agreements expressly preserve Sunshine’s ability to recover the cattle. Whether the parties strictly adhered to the terms of these leases is irrelevant to determining whether the agreements were true leases or disguised security agreements. Neither the bankruptcy court nor the parties sufficiently explained the legal import of Purdy’s culling practices or put forward any evidence that the parties altered the terms of the leases making them anything but leases.View "In re: Purdy" on Justia Law

In 2008, Musgrave, a CPA, became involved in a tire recycling venture with Goldberg. Musgrave obtained a loan, guaranteed by the Small Business Administration (SBA), through Mutual Federal Savings Bank. The venture ultimately lost the $1.7 million loan and Musgrave lost his $300,000 investment. In 2011, the two were indicted. Goldberg pled guilty to one count of misprision of felony, and the recommended a sentence of three years of probation, restitution, and a special assessment. Musgrave was convicted of: conspiracy to commit wire and bank fraud and to make false statements to a financial institution, 18 U.S.C. 1349; wire fraud, 18 U.S.C. 1343; bank fraud, 18 U.S.C. 1344. The district court sentenced him to one day of imprisonment with credit for the day of processing, a variance from his Guidelines range of 57 to 71 months and below the government’s recommendation of 30 months. The Sixth Circuit vacated, noting that economic and fraud-based crimes are more rational, cool, and calculated than sudden crimes of passion or opportunity and are prime candidates for general deterrence. The district court relied on impermissible considerations and failed to address adequately how what amounted to a non-custodial sentence afforded adequate general deterrence in this context. . View "United States v. Musgrave" on Justia Law