About Gloria Liu

Gloria is a second year student at Brooklyn Law School. She graduated from Wellesley College in 2009 with a BA in International Relations and English. She has interned with The Topps Company, Inc, and just completed an externship with Brooklyn Law School's Bankruptcy clinic. She is on the Journal of Corporate, Financial and Commercial Law and wrote her journal note on Sec. 619 of the Dodd-Frank Act. She continues to be interested by Dodd-Frank and hopes to branch into financial compliance.

A Review of “Reckless Endangerment”

The 2008 Financial Crisis and subsequent fall of Lehman has been a recent point of fascination. HBO released its acclaimed “Too Big to Fail”; Kevin Spacey starred in “Margin Call”; even Michael Douglas’ “Wall Street” saw a revamp with a sequel starring Shia LaBoeuf. In the academic sphere, the crisis has certainly been susceptible to hindsight bias but has also been analyzed from many different angles and approaches. In “Reckless Endangerment,” esteemed journalist Gretchen Morgenson teams up with Joshua Rosner to tell the little-known story of Fannie Mae and its large role in the subprime mortgage crisis. By using its special government backing, Fannie Mae, a private company, dominated the mortgage market and became the nation’s second-largest debt issuer.

At the heart of the story is James Johnson, Fannie Mae’s chief executive in the 1990s. Morgenson, in some sense “pierces the corporate veil” by exposing the faces behind the corporation. Humanizing the corporation, in such a manner, only serves to prove that the Financial Crisis was not one created in the abstract, but one created by people in a whirlwind of greed.

Morgenson argues and narrates how Johnson persuaded Congress to maintain Fannie Mae’s implicit government backing and fought off any governmental regulation. She traces the relationships he forges to further the interests of Fannie Mae. Notably, she mentions Georgia’s Fair Lending Act and its failed attempt at curbing predatory lending and how Johnson contributed to its demise. The tale would be incomplete with honorable appearances by players like CountryWide Financial, National Finance Corporation, NovaStar, KB Home and the infamous REMIC transaction.

As an introduction to understanding the subprime mortgage crisis, “Reckless Endangerment” is an entertaining read. Morgenson successfully makes an otherwise dry story of self-interested corporate interests, into a riveting tale filled with drama fueled by the unique personalities of the men sitting behind the scenes. Still, Morgenson’s agenda is very apparent creating an underlying tone of skepticism at Washington’s attempts to promote homeownership as the ultimate achievement of the American Dream.

Georgia District Court Holds Foreclosure May Be Wrongful Where Security Deed and Note Are “Split”

In Morgan v. Ocwen Loan Servicing, LLC, No. 1:10-cv-3555-AT (N.D.Ga. July 7, 2011), homeowner obtained a residential mortgage loan memorialized by two documents: a promissory note and a security deed. The original grantee of the promissory note was Guaranteed Rate. The original grantee of the security deed was MERS “as nominee” for Guaranteed Rate and its successors and assigns. Guaranteed Rate later transferred the note to Taylor, Bean & Whitaker. Subsequently, MERS executed a purported assignment of the security deed to Ocwen.

The court rejected the argument that the security deed is void because of the fact that MERS was named as the grantee-as-nominee in the security deed rather than Guarantee Rate, the actual lender and payee on the note. It reasoned that the argument is is unsupported by Georgia law as separation of the note and security deed creates a question of what entity would have the authority to foreclose, but does not render either instrument void.

In addressing the question of wrongful foreclosure, the court held it need not reach the question of whether an agent for the holder of the debt can carry out a power of sale foreclosure under Georgia law, as Ocwen did not advertise the foreclosure as agent for any disclosed principal.

Missouri Court of Appeals Holds that MERS Does not have Authority to Assign without Holding Note

In Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 621 (MO Ct. of App., E. D., Mar. 3, 2009), the court held that MERS did not have the authority to assign its interest because it did not hold the promissory note. BNC Mortgage Inc. (BNC) was the lender and payee of the promissory note. In the deed of trust, Millsap, Singer & Dunn, P.C. was the trustee. The deed of trust, however, did not name BNC as the beneficiary, but instead names MERS, solely as BNC’s nominee. The promissory note does not make any reference to MERS. The note and the deed of trust both require payments to be made to the lender, not MERS. MERS, as nominee for BNC, later assigned the deed of trust to Ocwen. The assignment of the deed of trust also contained language that this assignment also transferred any and all notes described in the deed of trust.

The court reasoned that because the note becomes unsecured in the event that the note and the deed of trust are split, there was no evidence in the record or the pleadings that MERS held the promissory note or that BNC gave MERS the authority to transfer the promissory note. Therefore, MERS could not transfer the promissory note and the language in the assignment of the deed of trust purporting to transfer the promissory note is ineffective. MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force. As Ocwen holds neither the promissory note, nor the deed of trust, Ocwen lacks a legally cognizable interest and lacks standing to seek relief from the trial court.

California District Court Holds that Deed of Trust Authorizes MERS to Take Certain Actions

In Wadha v. Aurora Loan Services,  CIV. NO. S-11-1784 KJM KJN (Dist. Ct., E.D. California. Feb 8, 2013), homeowners filed claims for wrongful foreclosure alleging that Aurora Loan Services was never assigned the beneficial interest in the deed of trust and that any assignment that MERS and Aurora claimed occurred was not required as required by the California Civil Code. The court upheld the prior court’s finding that the deed of trust lists MERS as the beneficiary, acting as nominee for the lender, and gives MERS the authority to take certain actions, including instituting foreclosure proceedings.

California Superior Court Upholds Language in Deed of Trust

In Obst v. Fannie Mae, No. 171619 (Shasta Cty. Super. Ct. July 11, 2011), the court denied the homeowner’s claim and upheld the language in the Deed of Trust. The original lender was Mortgageit, Inc. with MERS listed as the beneficiary in the deed of trust. The Deed of Trust states that MERS was authorized to exercise any or all of the lender’s interests with respect to the property.  The Deed of Trust was then assigned to One West Bank and recorded. Homeowner contends that the assignment is void because there is no proof that that the party acting as authorized signatory was an authorized signatory of MERS.

The deed of trust stated:  “Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including but not limited to, the right to foreclose and sell the Property…” Relying on a similar case, the court concluded that the deed of trust granted MERS the authority to initiate a foreclosure and contains no suggestion that the lender or its successors and assigns must provide further assurances that MERS is authorized to proceed with a foreclosure at the time it is initiated. Therefore, the court dismissed the complaints.

Southern District of California Bankruptcy Court Holds that MERS’ Role as Beneficiary Does Not Provide Protection Against Foreclosure Deficiencies

In In re Doble , BK 10-11296-MM13, 2011 WL 1465559 (Bankr. S.D. Cal. Apr. 14, 2011), the court held that MERS’ limited role as beneficiary of the deed of trust did not provide protection against foreclosure deficiencies. MERS’ role did not provide the banks with the authority to enforce the deed of trust, the ability to assign the note without an endorsement, or an exception to recordation obligation. The homeowner owned property encumbered by a deed of trust secured by a promissory note payable to Plaza Home Mortgage, Inc. The deed of trust identified Plaza as “lender” and MERS as the beneficiary.


California Court of Appeals Holds that MERS has Authority to Assign Beneficial Interest

In Forbes v. Countrywide Home Loans, Inc., E051309, 2011 WL 4985965 (Cal. Ct. App. Oct. 20, 2011), homeowner had acquired a single-family residence and later refinanced the property by obtaining two loans. Mortgage Funding, Inc. was the lender of both loans, and the loans were secured by two deeds of trust that were recorded. ReconTrust, the successor trustee under the first deed of trust, initiated nonjudicial foreclosure proceedings by recording a notice of default. (Civ. Code, § 2924, subd. (a).) The notice of default includes a declaration stating: “Countrywide tried with due diligence to contact the borrower in accordance with California Civil Code Section 2923.5 . . . .” Countrywide was the original servicer of the loan, and later changed its name to BAC. ReconTrust then recorded a notice of trustee’s sale under the first deed of trust, and conducted a sale. MERS was the original beneficiary under the foreclosing first deed of trust. Pursuant to an instrument titled “Corporation Assignment of Deed of Trust”, MERS transferred its beneficial interest, “together with” the promissory note, to FNMA. Homeowner then filed a complaint asserting (1) breach of an oral forbearance agreement with BAC, under which BAC agreed not to foreclose on the property; and (2) “wrongful foreclosure” based on various irregularities or Civil Code violations in the foreclosure sale proceedings.

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Court held that by executing the first deed of trust, homeowner agreed that MERS had the right to exercise, and could accordingly assign, “any or all” of the interests that homeowner granted to the Lender under the first deed of trust. These interests necessarily included the lender’s beneficial interest under the deed of trust, “together with” the lender’s right to collect all sums due under the note secured by the first deed of trust. Homeowner thus cannot state a cause of action to invalidate the sale or trustee’s deed based on his assertion that the deed of trust did not authorize MERS to initiate the foreclosure proceedings in the first instance, or based on his further assertion that the lender may not have, in fact, assigned the note to FNMA.