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Home Foreclosures: 8.5.3 Personal Jurisdiction over Out-of-State Defendants

Given the rise of mortgage securitization, it is now very common for out-of-state entities to be involved in cases related to residential home mortgages. If the homeowner brings an affirmative action against out-of-state entities, the court must have personal jurisdiction over those defendants. For cases brought in both state and federal court, jurisdiction over out-of-state parties will be governed by the state long-arm statute.394 Courts must also determine whether exercise of jurisdiction satisfies due process requirements.

Home Foreclosures: 8.7.4 Colorado River Abstention

An additional abstention doctrine, enunciated by the Supreme Court in Colorado River Water Conservation District v. United States,493 sometimes arises in federal challenges to foreclosures. Like the other abstention doctrines, Colorado River is a narrow exception to “the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them.”494

Home Foreclosures: 8.7.5.2 Cases Removed from State Court

The interplay between the federal courts’ removal jurisdiction and the Rooker-Feldman doctrine presents two special issues. First is whether the doctrine prevents a federal court from reviewing or modifying orders or judgments that were entered by a state court in the same case, before removal. The answer is clearly no.

Home Foreclosures: 8.7.5.4.2 Where federal defendants were not parties to the state court action

Some courts have suggested that if the federal defendants were not parties to the state court proceedings, this may be a reason not to apply the Rooker-Feldman doctrine even though the federal plaintiff was a party.546 The Tenth Circuit has held that merely adding defendants beyond those involved in the state court case does not avoid the doctrine.547 In that case, the court held that the doctrine barred claims against both the old and the new defendants.

Home Foreclosures: 8.7.5.9.4 Independent claims based on acts that preceded the state court suit

Several courts have held that the doctrine does not bar claims based on acts that preceded the state court suit, even if those acts ultimately led to the state court suit.624 For example, claims of fraud, deceptive practices, professional malpractice, and violations of TILA, the Equal Credit Opportunity Act, and the Fair Housing Act, all of which related to the origination of the mortgage, were independent of a state foreclosure judgment, so were not barred by the doctrine.625

Home Foreclosures: 8.7.5.9.5 Independent claims based on litigation misconduct by party in state court suit

A number of courts have held that a claim that a party procured a state court judgment by misconduct or fraud is an independent claim.626 For example, the Sixth Circuit held that a claim against a collection attorney for filing a false affidavit to initiate a state court garnishment action was an independent claim.627 The Ninth Circuit has gone so far as to develop an “extrinsic fraud” exception to the Rooker-Feldman doctrine based on California law that uses extrinsic fraud as a basis

Home Foreclosures: 8.7.5.9.6 Other independent claims

A Fair Debt Collection Practices Act claim that a lender falsely represented the amount due after a foreclosure sale was not barred by the Rooker-Feldman doctrine because the FDCPA claim did not challenge the validity of the consumers’ obligations under the state court judgment and because their injury was not caused by that judgment.632 Likewise, FDCPA claims related to a servicer attorney’s misquote of a payoff amount and failure to provide a reinstatement figure before a foreclosure sale, but after a state foreclosure judgment, sh

Home Foreclosures: 8.8.2.2 Two Separate TILA Provisions Limit Arbitration

In covered mortgage loans, TILA prohibits any terms that require arbitration or any other non-judicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction (hereinafter referred to as the “(e)(1) provision”).656 The parties can agree to arbitration or a similar procedure at any time after a dispute or claim under the transaction arises.657

Home Foreclosures: 8.8.2.3 Effective Date and Retroactive Application

There is no question that the TILA limitation on arbitration agreements in mortgage loans applies to any arbitration agreement entered into after June 1, 2013. This subsection considers the enforceability of arbitration agreements entered into before that date. Two issues are examined. First, whether the TILA requirement was effective as of June 1, 2013, or July 22, 2010. Second, whichever date is used, does the provision prevent the current enforcement of arbitration agreements entered into before the effective date?

Home Foreclosures: 8.8.3.1 Overview

An arbitration requirement is grounded upon an agreement between parties that delineated disputes must be resolved by an arbitration procedure specified in the agreement.

Home Foreclosures: 8.8.3.5.1 Individual arbitration

Where an enforceable arbitration agreement forecloses class arbitration, class action litigation in court, and individual court litigation, adequate client representation may require raising the consumer’s claims in an individual arbitration proceeding. Even if an arbitration agreement is not enforceable, it can take years to resolve this issue before even reaching the merits.

Home Foreclosures: 8.8.3.5.2 Class-Wide Arbitration

Where an arbitration clause prohibits class-wide arbitration, an arbitrator is unlikely to allow such relief, and a court would almost certainly overturn a class-wide arbitration award. Most, but not all arbitration clauses prohibit class-wide relief—some are silent on the issue.

Home Foreclosures: 8.9.5 Damages Relating to Overpayment

Capital returned to the homeowner, whether by cash payment or cancellation of debt, is not taxable income.748 In home defense cases, there may be compensation for amounts improperly overcharged or taken from the homeowner, routine out-of-pocket expenses, including medical bills, transportation costs, or property damage. Homeowners may also be entitled to a return of other monies wrongfully paid, including a refund of excess interest.

Home Foreclosures: 8.10.1 Dealing with Multiple Defendants

Most cases are resolved through a negotiated settlement among the parties. While there are many benefits to settling a case, including avoiding the cost, stress, and unpredictability of a trial, there are also numerous settlement-related issues that advocates should consider prior to finalizing any settlement agreement.

Home Foreclosures: 8.10.2 Confidentiality

Settling defendants often request that the settlement prohibit the parties from disclosing the terms of the settlement to anyone. A second, less extreme clause does not prohibit disclosure altogether, but prohibits publicity. Such clauses raise a host of concerns. They enable defendants to cover up massive wrongdoing, and create procedural obstacles if judicial enforcement of the settlement becomes necessary. Confidentiality agreements leave the litigation unsettled because they invite the defendant to sue the plaintiff years later, alleging disclosure of the settlement.

Home Foreclosures: 8.10.3 Protecting the Consumer’s Credit Report

An important element of settlement is protection of the homeowner’s credit record. As a matter of routine practice, attorneys should demand that all settlements related to credit accounts include a provision dealing directly with what the creditor should and should not report to a credit reporting agency.