A federal appeals court decision could mean a lawsuit based on a key provision of Utah's foreclosure laws will be sent back to state courts, which are now under the sway of a recent Utah Supreme Court decision that went strongly against the largest foreclosure entity in this state, Bank of America.
At issue are rulings by several federal judges in Utah that Texas laws govern foreclosures in this state when they are carried out by ReconTrust Inc., the Texas-based foreclosure arm of Bank of America. If eventually found to have violated Utah laws in carrying out tens of thousands of foreclosures, Bank of America could face thousands of damage claims by homeowners.
The legal controversy remains ripe after the U.S. 10th Circuit Court of Appeals in Denver sent a case back for further consideration by U.S. District Judge Ted Stewart, who ruled last year that federal banking laws preempted Utah laws. That meant, according to the decision, that the laws of Texas where ReconTrust has its headquarters governed its actions in Utah.
Attorneys who filed a proposed class-action lawsuit against ReconTrust appealed to the 10th Circuit. While the appeals panel did not rule on which state laws should govern ReconTrust, it did question whether the case had been properly removed from state court where it was originally filed to federal court.
Stewart was asked to take a second look at the issues of which court was the proper venue for the lawsuit, meaning he could decide to send it back to Utah's 3rd District Court.
"We view the 10th Circuit's ruling as a significant victory for our case, vindicating our efforts to obtain relief on behalf of Utah homeowners against the illegal practices of the bank," said Marcus Mumford, one of the attorneys for the homeowners.
While spokeswoman Jumana Bauwens said Bank of America does not comment on ongoing litigation, "I do want to point out that the decision by the 10th Circuit was not based on the merits of the case."
Still, the decision raises the possibility that the case will end up back in the state court system where the Utah Supreme Court recently directly confronted the issue of which state laws govern a national bank based in another state but operating in Utah.
The Utah justices were blunt in a decision involving homeowner Loraine Sundquist: "A national bank seeking to foreclose real property in Utah must comply with Utah law."
"The Sundquist decision is controlling in state court," said Abraham Bates, another homeowner attorney. "They directly confronted the issue and decided in our favor on that."
Under Utah law, a foreclosure can only take place legally if conducted by a Utah attorney or title company with operations in the state. The purpose of that statue passed by the Legislature was to provide a homeowner facing foreclosure with someone locally to communicate with.
After the bursting of the real estate bubble in 2008, ReconTrust carried out thousands of foreclosures in this state using its offices in Texas. Dozens of lawsuits over foreclosures flooded Utah state courts and many were removed to federal court, where they were largely dismissed.
Still, several lawsuits over the issue of whether ReconTrust followed Utah law in carrying out foreclosures remain pending, including the one sent back to Utah by the circuit court. In that case, three sets of homeowners who had been foreclosed on by ReconTrust sued and are proposing the case become a class action to include other homeowners who also lost their homes to foreclosure by the Bank of America unit.
The Utah Supreme Court decision was largely based on a ruling by U.S. District Court Judge Bruce Jenkins, who ruled in another case that Utah law was not preempted by national banking law and clearly governed foreclosures in this state. Stewart and other federal judges reached the opposite conclusion, creating a split on the question in federal courts in Utah.
But another Utah case remains pending before the 10th over the same issues and a ruling there might settle the issue.