Judge Halts All BofA Mortgage Foreclosures In Utah; Says Bank Failed To Register To Do Business & Lacks Offices Within State As Required By Law

In St. George, Utah, KCSG-TV reports:

• A court order issued by Fifth District Court Judge James L. Shumate May 22, 2010 in St. George, Utah has stopped all foreclosure proceedings in the State of Utah by Bank of America Corporation, ; Recontrust Company, N.A; Home Loans Serving, LP; Bank of America, FSB []. The Court Order if allowed to become permanent will force Bank of America and other mortgage companies with home loans in Utah to adhere to the Utah laws requiring lenders to register in the state and have offices where home owners can negotiate face-to-face with their lenders as the state lawmakers intended (Utah Code ' 57-1-21(1)(a)(i).).

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• The lawsuit filed by John Christian Barlow, [...] has drawn the ire of the high brow BofA attorney and those on the case in the law firm of Reed Smith, LLP, the 15th largest law firm in the world. Barlow said Bank of America claims because it’s a national chartered institution, state laws are trumped, or not applicable to the bank. That was before the case was brought before Judge Shumate who read the petition, supporting case history and the state statute asking for an injunctive relief hearing filed by Barlow. The Judge felt so strong about the case before him, he issued the preliminary injunction order without a hearing halting the foreclosure process.

• The attorney’s for Bank of America promptly filed to move the case to federal court to avoid having to deal with the Judge who is not unaccustomed to high profile cases and has a history of watching out for the “little people” and citizen’s rights. The legal gamesmanship has begun with the case moved to federal court and Barlow’s motion filed to remand the case to Fifth District Court.(1) [...] Barlow said the Bank of America attorneys are working overtime filing motions to overwhelm him and the court. “They simply have no answer for violating the state statutes and they don't want to incur the wrath of Judge Shumate because of the serious ramifications his finding could have on lenders in Utah and across the nation where Bank of America and other financial institutions, under the guise of a mortgage lender have trampled the rights of citizens,” he said.

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• The second part of the motion, Barlow filed, claims that neither the lender, nor MERS*, nor Bank of America, nor any other Defendant, has any remaining interest in the mortgage Promissory Note. The note has been bundled with other notes and sold as mortgage-backed securities or otherwise assigned and split from the Trust Deed. When the note is split from the trust deed, “the note becomes, as a practical matter, unsecured.” Restatement (Third) of Property (Mortgages) § 5.4 cmt. a (1997). A person or entity only holding the trust deed suffers no default because only the Note holder is entitled to payment. Basically, “[t]he security is worthless in the hands of anyone except a person who has the right to enforce the obligation; it cannot be foreclosed or otherwise enforced.” Real Estate Finance Law (Fourth) § 5.27 (2002).

For the story, see Judge James L. Shumate Orders Halt to Bank of America Foreclosures in Utah.

For a follow-up story, see Federal vs State Rules Governing Mortgage Lenders the Case to be Argued Before Federal Judge Clark Waddoups Thursday.

(1) For a Willamette Law Review article that addresses the apparent abuse by some corporate defendants in civil cases of removing state court cases to Federal court (which imposes a cost in time and money on plaintiffs and the court system) in an attempt to shop for a friendlier litigation forum, see Erroneous Removal As A Tool For Silent Tort Reform: An Empirical Analysis Of Fee Awards And Fraudulent Joinder (article also available at http://ssrn.com/abstract=1073402).