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Mortgage Borrower’s Claim Against New Century for “Mortgage Fraud” Disallowed and Expunged
In re New Century TRS Holdings, Inc., Case No. 07-10416 (KJC) (Bankr. D. Del. Apr. 10, 2014)
On April 10, 2014, the Honorable Kevin J. Carey issued a Memorandum sustaining an objection to a proof of claim filed by a pro se mortgage borrower (the “Claimant”) in the bankruptcy proceeding of New Century Mortgage Corporation (“New Century”). This is Judge Carey’s third opinion in recent months denying pro se borrower claims in New Century. A joint summary of the two other opinions may be found here.
The Claimant filed proof of its claim (the “Claim”) generally alleging “mortgage fraud.” The Claim included a laundry-list of assertions that the Court interpreted as claims for fraud, civil conspiracy, liability for wrongful acts of third parties (such as the mortgage broker and appraisal company), breach of fiduciary duties, violations of the Truth-in-Lending-Act (“TILA”), the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act, and the Massachusetts Predatory Home Loan Practices Act, “reverse redlining”, and “flipping”.
To begin its analysis, the Court reviewed whether the initial burden of persuasion as to the validity of the Claim rested on New Century or the Claimant. Pursuant to Federal Bankruptcy Rule 3001(f), a proof of claim executed and properly filed is prima facie evidence of the validity of the claim so long as sufficient supporting documentation is provided. If so, the party objecting to the claim carries the initial burden to overcome the allegations made in the creditor’s proof of claim. If not, the claimant maintains the burden of proving its claim by a preponderance of the evidence. Here, the proof of claim attached only a partial copy of the TILA disclosure statement and retyped newspaper articles. The Court did not find this documentation sufficient and rested the burden of persuasion on the Claimant.
The Court then rifled through the various claims, often finding multiple reasons why each must be disallowed and expunged. To support his assertion of fraud, the Claimant argued, among other things, that “no one explained the loan documents to him.” The Court did not find this supportive of a finding of fraud as those who execute documents are ordinarily held to their terms, especially if the signatories are well educated and experienced, as the Claimant was here. Moreover, the Court held that a claim for breach of fiduciary duty could not be maintained as no fiduciary relationship arose between the Claimant and New Century. Under Massachusetts law, such a relationship can only arise between a borrower and a lender if “the borrower reposes its trust and confidence in the lender and the lender knows of and accepts the borrower’s trust[.]” In this particular case, the Court determined that the Claimant may have reposed a special trust in New Century, but he never communicated directly with New Century. With respect to the remaining claims — including the “flipping” claim, for which the Claimant provided no explanation but was interpreted by the Court to mean that “New Century made the Loan improperly for the purpose of immediate resale” — the Court determined that the Claimant did not allege sufficient factual and/or legal bases in support and, accordingly, sustained the pending objection in toto.