Mortgage Claims Against Deutsche Bank Not Barred by Failed-Bank Law
Can homeowners whose original mortgage bank failed sue the new owner of their mortgage for the original bank’s wrongdoing? Yes, according to a recent decision from the Massachusetts Appeals Court, Starkey v. Deutsche Bank.
The case involved a relatively complicated statutory issue related to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). FIRREA governs what happens when a bank fails and is taken over by the FDIC. The FDIC then sells the failed bank’s assets (including its mortgages) to a new bank.
What happened in this case was that when Washington Mutual Bank failed, its assets, including the homeowners’ mortgage, were taken over by the FDIC, and then sold to Deutsche Bank. The homeowners claimed that Deutsche Bank was prohibited from foreclosing on their home because of predatory lending, failure to provide Truth in Lending Act disclosures, and violations of the Consumer Protect Act, among other things.
A trial court judge dismissed the case, saying that under FIRREA, any claims against the failed bank are precluded after a new bank purchases its mortgages.
Not so fast, said the Appeals Court. Reviewing the statutory language of FIRREA, the Appeals Court held that the claims could be raised, although only against Deutsche Bank, not against Washington Mutual.
This was because the mortgage at issue was assigned to Deutsche Bank before Washington Mutual failed. Furthermore, the homeowners’ claims were only against Deutsche Bank, not against Washington Mutual. Therefore, the lawsuit was reinstated in part, and remanded back to the trial court.
This case shows that when examining transfers of mortgages, it is vital to review all documents pursuant to which the mortgages were assigned. In this case, although there was an assignment of the mortgage recorded in the Registry of Deeds after Washingon Mutual failed, there was a previous, unrecorded assignment before the failure. This was what the Court looked to when determining that FIRREA did not preclude the homeowners’ lawsuit.
The decision is here: Starkey v. Deutsche Bank
Culik Law represents homeowners against banks, mortgage servicers, credit bureaus, and other financial institutions. If you have been subjected to wrongful actions by one of these, or if you are facing foreclosure, contact us to see if we can help.