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john gault's Blog

9th Circuit Reverses; Suit Goes Forward re: Mtg Loan Debt Collectors
by john gault | 2015/07/20 |

The 9th Circuit Court of Appeals recently reversed and remanded a long-fought battle over licensing for those who are deemed to have been acting as debt collectors when performing activities related to non-judicial foreclosure. 

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The Deed of Trust Act, enacted at the lobbying efforts of lenders seeking to avoid the time and expense of judicial foreclosure, introduced and provided for non-judicial foreclosure by the introduction of a third party, the trustee, into the collateral instruments for mortgage loans (this is an old act; I wonder now if homeowners were given an opp to weigh in on the proposed legislation. Many homeowners know what we'd have said had we known of its future abuses, just like with a "MERS"  beneficiary or a "mers" mortgage") That party, the dot trustee, was vested with the powers to do certain things and those rights are triggered by the default in payment on the note the dot secures. Trustees were generally title companies. Title companies, as many readers here at sourceoftitle would know,  retain copies of the documents used when loans are closed. They must keep them for a prescribed amt of years. This includes copies of the notes and dots. Copies of the notes and deeds of trust are also included in the loan file sent to the servicers, so at least these copies are available to send to the trustees when foreclosure is sought,along with other documentation supporting the default. 

By and large, the law holds that a title company, acting in its capacity as title insurer, is not the agent of the lender (nor of the borrower). I don't know, unfortunately, how the original act described the party who could be the dot trustee. I only know they are initially the title company closing the loan. All title companies, to my knowledge, have attorneys on staff well-versed in the laws relevant to these loans and the transfers of these loans from a seller to a buyer.

As non-agents for either party to the agreement, the trustee is to serve as a non-judicial (no black robe needed), impartial third party in determining if non-judicial foreclosure may be instituted.  The attorneys on staff (distinction re: other attorneys) should be, and likely were,  people qualified to make such a determination.  
Today, some states mandate that certain parties be licensed as debt collectors.  I've never thought such a requirement for add'l licensing as a trustee was needed for title companies who have on-staff well-versed attorneys, but, BIG but, that was based on the former qualification of parties serving in that capacity (with these well-versed staff attorneys).  Now it's just about anyone and some of those "just about anyone's" appear to be calling themselves "escrow" companies to avoid the licensing requirements prescribed by some states, here noteworthy, Nevada. Further, the "escrow company" and also companies acting as dot trustees - or agents - are affiliated with the party claiming to be the successors in interest to the loans.  Well, actually, there isn't a claim per se of being the successor in interest. What there generally is is a claim of being in possession of the note, as if those two descriptions are synonymous. They are often owned by law firms representing the lender (or ARE the law firm) or owned by the lender itself. This is hardly consistant with the objectivity and neutrality contemplated by the Act in allowing non-judicial foreclosure.

Some states, like Nevada, have massacred the Act in my opinion by changes to state law, in particular by allowing agents of the lender to perform duties related to non-judicial foreclose. Any originally legislated neutrality and objectivity appears to wrongfully be a thing of the past..  As I've opined before, if one is an agent of one party to an agreement,   one is not a "trustee" as contemplated if not mandated by the Deed of Trust Act - and agents are being allowed to execute and record Notices of Default and further, to not recite critical information in those notices of default. (In one noteworthy case wherein a party alleged to be the beneficiary's agent and not the duly appointed substitute trustee, the NV SC found it unnecessary to recite the default figures, including the number $$ to cure,  in a notice of default (in fairness to the court, the court said it didn't matter as long as the homeowner gets the info). This, imo, overlooks the fact that these numbers $$ aren't provided in the NOD for the exclusive benefit of the borrower.  They're an integral part of the recorded Notice of Default to give Notice to the public and also to any junior lienholders who may want to cure to protect their interests:  in my view, any recorded Notice of Default which doesn't include these figures is no Notice of Default.

 Debt collectors should be licensed as such and stay in their own corners. No one should be performing ANY duties relevant to the deed of trust and no one acting as the purported lender's agent should be in the act at all. Lenders argue they and their trustees and or agents are not subject to licensing laws and don't violate the FDCPA by their practices because they aren't subject to the FDCPA. Yet many letters sent to homeowners around the time of the Notice of Default are sent by (sometimes the same) parties identifying themselves as debt collectors and specifically reference the FDCPA.  

Acting as the agent  of the lender in seeking enforcement under a deed of trust is just plain wrong in my view if one is also purporting to be the trustee in a deed of trust;  in fact, it's an outrage.  No one except a bona fide, qualified deed of trustee should be doing anything in regard to the deed of trust - or the amounts due under that deed of trust.  Trustees shouldn't be abdicating their own duties. It's my lay person understanding that if those appointed as substitute trustees for deeds of trust claim agent status with the lender,  they're actually prohibited as a matter of law (if not contract) from appointing sub-agents for anything but the most menial of tasks. And yet we have not at all diminutive documents and letters sent to homeowners often signed by so and so as the agent of another party itself claiming agency status with the deed of trust beneficiary.

Debt collectors work exclusively for the party engaging and paying them, which is hardly consistant with the neutrality this job, at least when legislated initially, demanded. 

So it's with that background, including "they wanted it, they got it" as to the abominable changes in the law (allowing agents for one party to the deed of trust to perform duties relevant to the deed of trust),  that I was pretty happy to see a recent decision in the 9th, reversing and allowing (after a 4 year battle) a suit to go forward regarding the non-licensed status of five companies who were apparently acting as trustees and or debt collectors for any number of entities. 

                                    BENKO , 1315185 (9th Cir. 61 8 2015)

1) QUALITY LOAN SERVICE(s) CORPORATION, a California corporation

2) MTC FINANCIAL,INC., DBA Trustee Corps.

Deed Service, DBA MTDS, Inc.



(my nos. above)

Nicholas A. Boylan (argued), Law Office of Nicholas A. Boylan, San Diego, California, for Plaintiffs-Appellants. Las Vegas attorney Shawn Christopher was or is also involved for
the plaintiff-homeowners.   

As an advocate for home-ownership and the law,  and witness to what can only be descried as unprecedented predatory lending, I can't help hoping some measure of justice prevails for homeowners, for as I said, they wanted it, they got it. We can't be sorry they can't have it both ways: if one is going to act as a debt-collecting agent of one party, he should be appropriately licensed.

On information and belief, while QLS was originally the recipient in 2010 of a cease and desist order, that order has since been vacated. Also on information and belief, the Order was not stayed during the pendancy of the appeal, potentially impacting hundreds if not thousands of foreclosures. 

According to the 9th Circuit

" In their SAC, the Plaintiffs alleged that, by virtue of foreclosing on Nevada real property utilizing a private sale, the Defendants engaged in "claim collection" under Nevada Revised Statutes (NRS) Section 649. The Plaintiffs argue that, since Nevada law requires that trustees be licensed, the Defendants' failure to register as "collection agencies," as defined in
NRS Section 649.020, constituted a deceptive trade practice."

 This could end up being very interesting for homeowners or it could be the 9th has merely determined the district court was the improper venue for this case, with the proper venue ruling much the same as the district court.  Say tuned! 

These are my own (lay) opinions. I have no affiliation with anyone related to this case. 












2141 words | 7288 views | 1 comments | log in or register to post a comment

Thanks for your informative blogs.  I've started to read a few of them when time permits. 
by Don (Chunshen) Li | 2016/02/25 | log in or register to post a reply
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