INCREDIBLE DECISION FROM ARIZONA COURT OF APPEALS: HOMEOWNER PERMITTED TO DEFEND FORECLOSURE BASED ON CLAIM OF PAYMENT AGAINST LOAN BY THIRD PARTY SOURCES, PROCEDURAL AND SUBSTANTIVE UNCONSCIONABILITY, NEGLIGENCE PER SE, AND NEGLIGENT ADMINISTRATION OF A LOAN MOD

February 18, 2014

In a 33-page decision, the Arizona Court of Appeals reversed the trial court’s dismissal of a homeowner’s Complaint challenging a foreclosure instituted by Deutsche Bank as Trustee of an IndyMac securitization. The decision in Steinberger v. IndyMac was issued on January 30, 2014. The Court of Appeals accepted jurisdiction of a Special Action filed by the homeowner from her case which she had filed in the Maricopa County Superior Court.

The case concerned a loan which had been given to an 87 year old homeowner. The Court found that the allegations in the Complaint that the loan contained terms which were unusual, one-sided, oppressive, and not explained to the borrower properly constituted claims for procedural and substantive unconscionability. The Court also held that a claim of negligence per se was permissible where the homeowner alleged that the substitution of trustee was recorded knowing that that the person who signed it did so without authority, and that the MERS Assignments were made to entities which were known not to exist at the time of the assignments.

The Court also permitted a claim for negligent performance of a duty in connection with the loan mod process where the homeowner was told that he had to be in default in order to have a loan mod made; he went into default based on this representation; and through the negligence of the defendant the loan mod was never made, thus creating a default and subjecting the homeowner to foreclosure.

However, perhaps the most significant portion of the holding is toward the end, where the Court permitted the claim for payment/discharge of a debt on the homeowner’s allegation that OneWest had been paid all or at least 80% of the amounts claimed due under the loan due to an FDIC Shared Loss Agreement which was attached to the Complaint. The Court permitted the claim even though, at the pleading stage, it was not clear whether the agreement applied to the particular loan.

The Court found, however, that “the agreement does appear to provide that, in exchange for OneWest’s assumption of IndyMac Federal’s loans, the FDIC would reimburse OneWest at 80% for any default in payments on these loans.” The homeowner alleged that this agreement, “combined with insurance coverage and/or other sources of reimbursement”, has resulted in OneWest’s either being paid in full on the Note or having received 80% of the payments due on the Note.

This setoff against the amounts claimed due on the loan, in securitization cases due to insurance and other sources, is a matter we have been advancing since 2008. We have had discovery on these issues repeatedly compelled, through never produced: the banks will take a dismissal or attorneys’ fees against them rather than produce this information. This case is the first that we know of which now permits an affirmative claim to be made against a foreclosing “bank” that it has been paid in full from third party sources.

Bravo to the Arizona Court of Appeals for taking the time and effort to debunk so many “bank attorney myths” in foreclosure cases.

We thank one of our dedicated readers for this opinion, a copy of which is available upon e-mail request.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

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