January 9, 2015
by Geoffrey K. Milne
Hunt Leibert – USFN Member (Connecticut)
Lenders in hotly contested disputes with borrowers should consider prosecuting mortgage foreclosures in federal court, particularly if any question of federal law may be involved in the litigation. In Bank of NY Mellon as Trustee for BS Alt A 2005-9 v. Bell, 2014 U.S. Dist Lexis 174716, the District Court of Connecticut ruled in favor of the lender and entered a judgment of strict foreclosure after a five-day trial. The case involved a predatory lending defense and numerous other challenges to the loan documents and the transaction. The action was filed on diversity jurisdiction grounds, and the plaintiff satisfied the requirements of being an active trustee capable of suing in its own right.
The borrower in Bell contended that the original lender made a predatory loan, and alleged that the assignee of the loan was barred from foreclosing due to origination and securitization misconduct. The borrower also challenged the authenticity of servicing records and asserted fraud.
Because the original lender was a federally chartered savings bank, the lender argued that any state-law predatory lending defense was subject to federal preemption. The District Court agreed, citing Second Circuit precedent involving federal preemption. The court found no evidence to support the borrower’s challenges to the authenticity of servicer business records, nor was there evidence to support a defense of fraud.
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