Bankruptcy Court for the District of Massachusetts Finds Bank had Failed to Prove it was Present Title Holder of the Mortgage, Denies Relief from Automatic Stay

In In re Moreno, 08-17715-FJB, 2010 WL 2106208 (Bankr. D. Mass. May 24, 2010), the Bankruptcy Court for the District of Massachusetts found that creditor/Property Asset Management, Inc. (“PAM”) had failed to prove its burden that it had standing to foreclose on the property in question. Accordingly, the court denied PAM’s motion for relief from the automatic stay without prejudice.

Debtor, Simeon Moreno, had originally executed a promissory note with GE Money Bank. GE endorsed the note in blank and transferred it ultimately to Lehman Brothers Holdings, Inc. (“LBHI”), who held the note when PAM filed its motion for relief from the stay. LBHI continued to hold the note throughout the case. PAM was never a holder of the note or an entity for whose benefit another held the note. Aurora Bank (formerly known as Lehman Brothers) requested that Litton transfer the loan from MERS to PAM in anticipation of this foreclosure. However, PAM adduced no evidence that Litton had any specified connection to the loan at the time they assigned it.

There was no evidence Litton was the servicer of the loan for Aurora Bank, nor was there evidence that Litton was registered as servicer of the loan for MERS. The only evidence produced was from Scott Drosdick, a vice-president of LBHI, who testified that Aurora’s instruction to Litton to transfer the mortgage to PAM was later “ratified by LBHI.” The court found the evidence “too vague to have any definite meaning” and gave it no weight. The court also noted how Litton’s proof of claim did not mention PAM or indicate in any way that the mortgage securing the claim was held by anyone other than LBHI.

The parties were arguing over the split-note theory; however the court found it was unnecessary to address the merits of this argument as PAM had presented no proof it was even the present title holder of the mortgage. The court noted there was no evidence that the MER’s employee who assigned the mortgage had any relationship to Litton. Nor was there evidence that Litton was the servicer for Aurora Bank. The court also clarified that it did not find that Aurora Bank had failed to retain Litton as its servicer, but “there [was] simply no evidence on the issue.” Since the burden was on PAM, and they had adduced no evidence, the court denied their motion for relief from the automatic stay without prejudice.

District Court for the Northern District of Illinois Finds No Wrongdoing in MERS’s Assignment & Deutsche Bank’s Ensuing Foreclosure

In Long v. One West Bank, No. 11 C 703 (N.D. Ill. 2011), the District Court for the Northern District of Illinois denied OneWest Bank, MERS & Deutsche Bank’s motion to dismiss in part as moot, and granted the motion in part. Additionally, the court denied defendant Albertelli’s motion to dismiss as moot.

Plaintiff Tammy Jo Long entered into a residential mortgage loan with Taylor, Bean, & Whitaker (TBW) in 2005 for property located in Georgia. Plaintiff Castle Home Builder’s, Inc. allegedly invested in improving the property and maintained a claim against the property. After numerous requests to identify the current lawful owner and holder of the Note and Security Deed, Ms. Long stopped making payments. While Deutsche represented that it was the owner in a non-judicial foreclosure proceeding, plaintiffs contended that TBW’s bankruptcy had precluded any transfer of interest in the Note to Deutsche. Plaintiffs also contended that Deutsche used a fabricated copy of the Note and Assignment to support their foreclosure action.

Plaintiffs’ amended complaint alleged six separate counts:

  1. Violations of the Fair Dept Collection Practices Act (FDCPA)
  2. Violation of the Illinois Uniform Deceptive Trade Practices Act
  3. Violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (Fraud Act)
  4. Violations of the Fair Credit Reporting Act
  5. Wrongful foreclosure
  6. Quiet title claim

Plaintiffs consented to voluntarily dismiss all claims against defendant Albertelli. Plaintiffs also consented to dismissing counts 2, 4, and 6 against OneWest Bank, MERS and Deutsche Bank without prejudice.

The court discussed TBW’s bankruptcy, and the validity of the copy of the Note and Assignment of Deed. First, the court concluded TBW’s bankruptcy was irrelevant to the assignment since MERS was the grantee under the Security Deed. Second, the court rejected the claim that a copy of the note was insufficient, stating “[t]here is no requirement…that an original promissory note be produced in order to execute a valid assignment, and Plaintiffs have failed to point to any law providing such a requirement.” Third, the court rejected claims that the assignment violated the Pooling and Servicing Agreement (PSA), concluding plaintiffs lacked standing to assert the claims as they were not parties to the PSA nor had they cited any precedent holding that an assignment is invalid because it conflicts with the PSA.

Wrongful foreclosure

The court concluded that plaintiffs had not “alleged any facts that would plausibility [sic] suggest that Defendants engaged in a wrongful foreclosure action or that Plaintiffs were damaged by any unlawful conduct by Defendants relating to the foreclosure.” Therefore, they granted defendant’s motion to dismiss the wrongful foreclosure claim.

FDCPA Claims

The court concluded that the FDCPA was inapplicable in this case because the debt related to commercial debt rather than consumer debt. Additionally, the court noted plaintiffs “failed to point to precedent indicating that a non-judicial foreclosure is considered debt collection activity protected by the FDCPA.” Therefore, they granted defendant’s motion to dismiss the FDCPA claims.

Fraud Act

The court also rejected plaintiffs’ fraud claims, concluding that “Deutsche was assigned the power of sale and there [were] no allegations that plausibly suggest that the foreclosure sale was unlawful.” Accordingly, the court concluded plaintiffs failed to meet FRCP Rule 9(b) particularity requirements.

District Court of Arizona Rejects Homeowners’ Motion to Remand, Grants Lender’s Motion to Dismiss, Without Prejudice

In Kane v. Bosco, 10-CV-01787-PHX-JAT, 2010 WL 4879177 (D. Ariz. Nov. 23, 2010) the court denied plaintiffs’ motion to remand, and granted defendants’ motions to dismiss, without prejudice.

In 2005 plaintiffs/homeowners, Peter and Diane Kane, refinanced their residential loan for $120,000. The corresponding deed of trust named Downey Savings and Loan Association, F.A. (“Downey”) as beneficiary. Several months later Downey executed a corporate assignment which assigned all of its interest in the deed of trust to defendant MERS, as nominee for defendant Central Mortgage Company (“Central”). In 2010, MERS assigned the deed of trust to Central. A substitution of trustee was also recorded appointing defendant Michael A. Bosco, Jr. (“Bosco”) as successor trustee under the deed of trust. At the same time a notice of trustee’s sale was recorded.

While the trustee’s sale was pending, plaintiffs hired a forensic examiner to review their loan documents. They also hired a certified banking expert witness to investigate which entity had the right to foreclose. Plaintiffs filed this complaint and sought an emergency temporary restraining order, alleging defendants violated the Truth In Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”), and that MERS lacked authority to transfer any interest in property or to initiate foreclosure proceedings. The court denied this order and a subsequent order. In this decision the court addressed plaintiffs’ motion to remand and various defendants’ motions to dismiss.

Plaintiffs’ Motion to Remand

The court denied plaintiffs’ motion to remand. Plaintiffs argued that because defendants committed crimes and felonious acts against the State of Arizona; and that state law claims and issues predominated over the federal claims; and that defendants did not properly appear in state court so as to have the authority to remove, remanding was proper. First, the court rejected plaintiffs’ argument that crimes against the State of Arizona warranted removal to the U.S. Supreme Court, concluding “plaintiffs misunderstand the jurisdiction of the federal courts.” Since the state of Arizona is not a party to the action, and there were no allegations of crimes against the state in the complaint, removal to the U.S. Supreme Court was inappropriate. Second, the court rejected plaintiffs’ supplemental jurisdiction argument, finding their claims of fraud and invalidity of the loan did not predominate over the federal law claims as they all arose from the same transaction or series of transactions. Finally, the court clarified that defendants’ counsel did not have to file a motion or notice of appearance before seeking to remove the case pursuant to a notice of removal.

Defendants’ Motion to Dismiss

The court granted defendants’ three separate motions to dismiss.

First, the court found plaintiffs’ complaint lacked “specific, clearly defined allegations as to each defendant.” Accordingly, plaintiffs’ complaint failed to satisfy the pleading requirements in Federal Rules of Civil Procedure 8 and 9.

Second, the court agreed that plaintiffs’ complaint failed to make any allegations related to a breach of Bosco’s obligations as successor trustee. Since they did not allege any violations of his obligations under the deed of trust or the statutes governing deeds of trust, Bosco was entitled to immediate dismissal.

Third, the court dismissed the individual defendants from the action as plaintiffs’ complaint failed to allege defendants were personally involved in the origination or servicing of plaintiffs’ loan.

Fourth, the court found plaintiffs’ TILA and RESPA claims were both insufficient as they didn’t allege any specific conduct by defendants that constituted a violation. Further, both claims were barred by the statute of limitations. Additionally, plaintiffs’ claims under the FTCA were barred as private litigants cannot maintain a claim for unfair trade practices. Finally, plaintiffs’ claims that defendants violated the Federal Deposit Insurance Act were also dismissed as they did not identify any provision of the act defendants allegedly violated.

Fifth, plaintiffs’ claims of fraud were dismissed as they were not made with particularity as required by F.R.C.P. 9(b).

Sixth, defendants’ authority to foreclose was not diminished by their mistitled assignment. The court concluded “MERS’s failure to title the document as a Corporate Assignment of Deed of Trust, instead of Mortgage, does not invalidate the…assignment…and subsequent transactions.”

Seventh, the court rejected plaintiffs’ allegations that MERS lacked the authority to assign security instruments or initiate foreclosure processes. It concluded it “fail[ed] to see how the MERS system lacks authority as a nominee of lenders to assign deeds of trust, and how, in assigning deeds of trust, commits fraud or records forged of false documents.”

Eighth, the court rejected plaintiffs’ claims that defendants failed to produce the original note before the commencement of a trustee’s sale. It quoted Mansour v. Cal W. Reconveyance Corp., 618 F.Supp.2d 1178, 1181 (D. Ariz. 2009) for the proposition that courts “have routinely held that [the] ‘show me the note’ argument lacks merit.”

Ninth, while plaintiffs alleged defendants filed forged and fraudulent documents, they did not specify which documents they were referring to.

Tenth, the court rejected plaintiffs’ claims regarding the splitting of the note and deed of trust as this is not a requisite to foreclosure under Arizona case law.

Accordingly, the court granted defendants’ motions to dismiss, but allowed plaintiffs 21 days to amend their complaint on their claims of fraud, Arizona’s deed of trust statutes, the Federal Deposit Insurance Act, forgery, and any specific declaratory relief.

District Court of Arizona Grants Lender’s Motion to Dismiss in Part, Denying Relief Only on Homeowners’ Quiet Title Claim

In Higton v. Quicken Loans, Inc., 2:10-CV-01320 JWS, 2011 WL 333357 (D. Ariz. Jan. 31, 2011) the court granted defendant, Quicken Loans, Inc.’s (“Quicken”), motion to dismiss for failure to state a claim in part and denied relief in part.

In 2007, plaintiffs/homeowners Graham and Janet Higton refinanced their home, borrowing $600,000 from Quicken. Plaintiffs claimed Quicken deliberately overstated their monthly income to qualify them for a loan that was “designed for failure.” Plaintiffs claimed the introductory interest rate, applicable only for the first five years, was never disclosed to them. After making payments for three years, they received a letter from Quicken in 2010 informing them that they risked default because the loan to value ratio was approaching its maximum of 115%. In fear they would lose their home, plaintiffs filed this suit asserting claims against Quicken for intentional misrepresentation, consumer fraud, quiet title, and violation of the Truth In Lending Act (“TILA”). In response, Quicken filed a 12(b)(6) motion to dismiss for failure to state a claim.

First, for plaintiffs’ intentional misrepresentation claims, the court noted there is a three-year statute of limitation for actions based on fraud. However, the time is not deemed accrued until the discovery by the aggrieved party of the facts constituting the fraud. Here, the court found it was unclear whether any of the “true facts” were not included in the loan documentation. It concluded by stating “[i]f all of the necessary information was disclosed to the Higtons in the loan documents, then the fraud claim is time-barred.”

Second, the court discussed plaintiffs’ claims of common law fraud. To make a showing of common law fraud, a party must show:

(1)   A representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer’s ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; (9) his consequent and proximate injury.

In total, the Higtons had five potential bases for their fraud claim.

1. The introductory interest rate was not disclosed to them, and thus they did not realize they had a negative amortization loan

The court concluded that based on the TILA statement provided to the Higtons, “[s]imple multiplication and division are all that would have been necessary to determine the…rate.” Further, the loan documents included “negative amortization” in bold typeface. Thus, plaintiffs failed to show element 5.

2. Quicken fraudulently overstated their income in the loan application

The court found plaintiffs failed to meet the 4th element because the Higtons certified to Quicken that their monthly income figure was “true and correct” as of 2007. The court found the misrepresentation was not to the Higtons, but rather “to employees of Quicken who were evaluating the loan.”

3. The court found this claim identical to the first and did not analyze it

4. Quicken induced the Higtons to enter into the loan transaction on the false belief that the Introductory Payment could be made for five (5) years

Again, the court found the only proof plaintiffs offered of this claim related to the nondisclosure of the introductory rate.

5. Quicken made verbal representations that the Higtons could refinance the loan at a later date

The court again found plaintiffs had failed to describe these assertions in their complaint.

Third, the court discussed plaintiffs’ consumer fraud claim, which has a one year statute of limitation after the cause of action accrues. Here, because reasonable diligence would have uncovered any fraud in the loan documentation at closing, the court concluded this claim was time-barred.

Fourth, the court addressed plaintiffs’ quiet title claim. It agreed with the Higtons that Quicken has an interest in their residence based on the deed of trust. It found that “[a]lthough plaintiffs’ claim does not appear very strong, it does not fail based on Quicken’s disclaimed interest in the property.”

Fifth, the court found plaintiffs’ TILA claims were time-barred as well, since any TILA claim must be brought “within one year from the date of the occurrence of the violation.” Here, the violation would have occurred no later than 2007. The court also rejected plaintiffs’ request for equitable tolling, finding their argument that they “are not mortgage professionals” as insufficient.

Finally, the court agreed with the Higtons that there were sufficient facts plead to support punitive damages. However, it clarified this is not an independent legal claim. It also granted the Higtons leave to amend. Accordingly, it dismissed plaintiffs’ claims based on intentional misrepresentation, consumer fraud, and TILA without prejudice. It also denied Quicken’s motion to dismiss plaintiffs’ quiet title claim.

District Court of Illinois Grants Ocwen Loan Servicing’s Motion for Summary Judgment, Finding MERS had Authority to Assign Mortgage & Note

In Ocwen Loan Servicing LLC v. Kroening, 10 C 4692, 2011 WL 5130357 (N.D. Ill. Oct. 28, 2011), the District Court for the Northern District of Illinois granted Ocwen Loan Servicing’s motion for summary judgment to foreclosure.

Defendant/homeowner, Victoria Kroening had originally executed a note and mortgage with Taylor Bean & Whitaker Mortgage Corporation (“TBW”) in 2007.  The mortgagee of the mortgage was MERS, which acted as nominee for TBW. In 2009, MERS assigned the rights associated with the mortgage and the note to Ocwen Loan Servicing LLC (“Ocwen”). After defaulting, Ocwen issued a notice of default to Ms. Kroening. When she did not cure her default, Ocwen initiated this suit.

 

The court found that this case was essentially a contract dispute. After discussing various provisions in the mortgage, the court concluded the “clear language unambiguously grants MERS the power to assign the mortgage and the note.” Further, since Illinois law defines “mortgagee” more broadly than just the holder of a note to include “any person designated or authorized to act on behalf of such holder,” the court concluded MERS had the legal authority to assign the mortgage.

 

The court also rejected Ms. Kroening’s argument that Ocwen didn’t actually possess the note. The court found that the note itself is a negotiable instrument, endorsed in blank, and thus subject to assignment by transfer and possession. Further, the contract’s clear language unambiguously gave MERS the ability to assign the right to foreclose. Finally, the court rejected Ms. Kroening’s claims that she never received notice of the default as “unsupported by record evidence.” Since Ms. Kroening had not “put forth any evidence upon which a reasonable jury would find for her,” the court granted Ocwen’s motion for summary judgment and entered a judgment of foreclosure and order of sale.

District Court of Arizona Finds MERS has Authority to Transfer a Lender’s Interest Under a Deed of Trust, Denies Plaintiffs’ Request for a Temporary Restraining Order

In Jones v. Wells Fargo Bank, CV11-0197-PHX-DGC, 2011 WL 683887 (D. Ariz. Feb. 18, 2011) reconsideration denied, CV11-0197-PHX-DGC, 2011 WL 767302 (D. Ariz. Mar. 1, 2011) the District Court of Arizona denied plaintiff/homeowners’ petition for a temporary restraining order, finding plaintiffs had failed to prove a likelihood of success on the merits of their case.

The Jones’ made five arguments in support of their petition for a temporary restraining order, the court addressed all five.

 

First, they alleged that the foreclosure documents created by Defendant Wells Fargo Bank did not include valid signatures. However their only evidence of this claim was complaints they had filed with the state’s Attorney General’s Office. The court found this was insufficient to show a likelihood of success on the merits.

 

Second, they argued that Wells Fargo was not a valid successor on the Deed of Trust or Promissory Note because MERS could not confer that status to Wells Fargo. The court disagreed, citing Blau v. America’s Servicing Co., 2009 WL 3174823 at *7 (D.Ariz., Sept. 29, 2009) for the proposition that “MERS is authorized to transfer a lender’s interest under a Deed of Trust and related documents.”

 

Third, plaintiffs argued Wells Fargo had already been paid in full on their Promissory Note. However, their only evidence of this claim was a stamp attached to a Deed of Trust that stated “pay to the order of Wells Fargo, NA, without recourse.” They did not explain how or by whom the note could have been paid in full. The court found this simply showed Wells Fargo’s right to receive payments.

 

Fourth, plaintiffs claimed that a complaint filed by the Arizona Attorney General against Bank of America in regards to mortgage fraud supported their TRO. Again, the court disagreed, finding claims against Bank of America irrelevant to plaintiffs’ claims against Wells Fargo.

 

Finally, plaintiffs claimed they did not understand when they signed the Deed of Trust that MERS could transfer their rights. However, the court pointed to the specific language in the Deed that stated MERS was a beneficiary to deny this claim as well. Further, since plaintiffs did not argue they were unaware that beneficiaries of a Deed of Trust could foreclose if payments were not made, the court concluded plaintiffs had failed to show a likelihood of success on the merits, and denied their request for a TRO.

Superior Court of New Hampshire Denies Homeowners’ Consumer Protection Claims, Finds MERS has Authority to Assign Mortgage

In Powers v. Aurora Loan Services, 2011 WL 4428713, the Superior Court of New Hampshire denied plaintiff/homeowners’ petition for injunctive relief and lifted the stay on foreclosure.

Plaintiffs had sued Aurora for numerous violations of the New Hampshire Consumer Protection Act, including deceptive debt collection (RSA 358-C); fraud, and negligence. Plaintiffs had originally executed a note secured by a mortgage with GreenPoint Mortgage Funding, Inc. (“Greenpoint”). The mortgage named MERS as nominee and mortgagee. Approximately one year after signing, Aurora became the servicer of the loan. Two years later plaintiffs defaulted. Aurora had previously worked out three previous forbearance agreements with the homeowners, however after plaintiffs defaulted on the third modification Aurora instituted a foreclosure proceeding.

Plaintiffs’ only legal challenge was that Aurora lacked standing because MERS, as nominee, lacked the authority to assign the mortgage to Aurora. The court, citing Black’s Law Dictionary and other decisions nationwide, disagreed. The court summarized, “[t]he Powers (homeowners) knew who their mortgagee was; they communicated with the mortgagee and entered into a number of repayment and forbearance agreements.” The court also rejected their claims that the complex nature of the mortgage’s ownership obfuscated the current mortgagee.

The court also addressed MERS ability to assign its interest in the mortgage as it related to Aurora’s standing. Acknowledging “there is no New Hampshire case law on point” the court discussed developments nationwide and concluded MERS had the authority to transfer the mortgage to Aurora. In addition, the court referred to the language in the mortgage itself, which reflected MERS’ authority to assign its interest. Accordingly, the court dismissed plaintiffs’ claims for injunctive relief and lifted the stay on foreclosure.