About Karl Dowden

Karl is a third year law student attending Brooklyn Law School. He received his B.A. from the State University of New York at Geneseo with a major in Political Science and a minor in Sociology. Karl has completed the required courses in order to receive a Certificate in Real Estate Law in addition to his Juris Doctor. He has substantial experience in affordable housing after completing internships at New York State Homes and Community Renewal, the umbrella organization for New York State's affordable housing agencies, and at Goldstein Hall, PLLC. He has also gained experience in both small business law and nonprofit law throughout the course of those internships.

Rhode Island Court Denies Plaintiff’s Claim to Invalidate Foreclosure Sale

In Porter v. First NLC Financial Services LLC, No. PC 10-2526 (R.I. Sup. March 31, 2011), the plaintiff challenged the validity of a foreclosure sale conducted by MERS. The defendant’s motion for summary judgment was addressed in this opinion.

The plaintiff argued that the original lender, First NLC, terminated its agency relationship with MERS by filing for bankruptcy protection. The plaintiff alleged that First NLC failed to affirm its contract with MERS which was required under Section 365 of the Bankruptcy Code. However, the court noted that the plaintiff failed to include affidavits or any evidence to support her allegations, as required to successfully oppose a summary judgment motion.

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In addition, the plaintiff alleged that MERS was not the holder of the note or mortgage deed on the date of the foreclosure sale, MERS was not acting as an agent of the lender, and there was no chain of title to MERS or valid assignment of the note to the lender. The court found the plaintiff’s these objections to the foreclosure sale as substantially similar to Bucci v. Lehman Bros. Bank and adopted the reasoning to dismiss these claims. The plaintiff similarly claimed these actions were violations under both the mortgage agreement and Rhode Island’s statutes.

The court found the language in the mortgage agreement was unambiguous and clear in granting MERS status as both nominee for the First NLC and as mortgagee under the agreement. As a result, the statutory power of sale was specifically granted to MERS as mortgagee and lender’s nominee.

A statutory challenge to the authority of MERS was similar rebuffed. Since adopting the plaintiff’s argument would result in mortgagees and lenders being unable to use a mortgage servicer, the court rejected the argument.

Finally, a claim of tortious interference based on the plaintiff’s tenants who broke their leases and terminated their tenancy at the property as a result of the foreclosure was addressed. A claim of tortious interference requires the plaintiff to show an existence of a contract, the alleged wrongdoer’s knowledge of the contract, and the intentional improper interference of the contract along with damages as a result. The court found the foreclosure to be proper, which resulted in the tortious interference claim being dismissed since the interference must be improper in order to succeed.

The court ultimately granted the defendant’s motion to dismiss the case.

Rhode Island Superior Court Addresses Challenged to MERS

One of the earliest opinions addressing challenges to MERS in Rhode Island is Bucci v. Lehman Bros. Bank, No. PC-2009-3888 (R.I. Sup. August 25, 2009).

The plaintiff challenged MERS’s standing to foreclose on their house following the plaintiff’s default on their mortgage. The mortgage contained a provision granting the lender the statutory power of sale. The plaintiff requested a declaratory judgment and injunction relief by canceling the foreclosure sale of their house.

The plaintiffs argued that the mortgage agreement does not authorize MERS to foreclose by power of sale. They argue that the provision granting the lender the statutory power of sale specifically limits the ability to foreclose to the original lender, which is the Lehman Brothers Bank. However, the court found additional language in the mortgage agreement that expressly named MERS the nominee and granted MERS the right to invoke the statutory power of sale. The court also found that opinions from other jurisdictions outside of Rhode Island which addressed the issue have also supported the ability of MERS to foreclose as mortgagee and nominee for the beneficial owner of the note.

An additional statutory challenge was addressed by the court as well. The plaintiffs argued that a number of statutes implicitly prohibited MERS from foreclosing as a mortgagee in a nominee capacity. The plaintiffs argued that the term “mortgagee” in the statutes was intended to apply only to the lender. However, the court dismissed this as a narrow interpretation which “would undermine the role of servicers in the mortgage lending industry.”

As a result, the court dismissed the plaintiff’s request for declaratory and injunctive relief and held that MERS had standing foreclose the plaintiff’s mortgage.

Plaintiff’s Challenge to MERS While Not in Default Dismissed by Nevada Court

In Wellington v. Mortgage Electronic Registration Systems, Inc., et al., No. 2:12-CV-00541-KJD-VCF (D. Nev. Oct. 30, 2012), the plaintiff decided to challenge the use of MERS after learning of fraudulent activity in the mortgage industry. After failing to obtain documents she requested from CMI, the entity that was assigned servicing rights by MERS (who is listed as the beneficiary in her deed of trust), she filed this suit. In this case, the plaintiff is representing herself and she is not in default, making it an unusual case since there is no foreclosure proceeding in process.

The plaintiff challenged the use of MERS as a nominee under her deed of trust. However, the court found that MERS has been recognized as a valid entity that can be named as a nominal beneficiary of deeds of trust by the courts in both the Nevada district court system and the 9th Circuit court system. In addition, the deed of trust signed by the plaintiff permitted MERS to exercise the rights and interests accompanied by legal title, including the right to sell the note without notice to the plaintiff. As a result, the court found that the initial appointment of MERS as a nominal beneficiary by the lender was valid.

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The plaintiff also alleged a violation of the federal Fair Debt Collection Practices Act. However, the court found that the statute does not apply to the relevant mortgage institutions as long as the debt was not in default at the time it was assigned. In this case, it does not apply to the defendants since the plaintiff was not in default at the time of the assignment. In addition, the plaintiff did not state any specific abusive or fraudulent debt collection practices by CMI. She only challenged CMI’s collection of payments and failure to forward her payments to the actual creditor. However, the plaintiff failed to identify the actual creditor. As a result, the court granted the defendant’s motion to dismiss the claim.

Court Dismissed Claim of Violation of the Nevada False Claims Act

In State of Nevada, ex rel. Barrett Bates, et al. v. Mortgage Electronic Registration System, Inc., et al., No. 11-16310 (9th Cir. 2012) (unpublished),  the Court of Appeals for the federal court of Nevada affirmed the lower court’s decision to dismiss the plaintiff’s claim.

The plaintiff alleged the defendants violated Nevada’s False Claims Act, which was filed on behalf of the state of Nevada and its counties. To show a violation of the False Claim Act, the plaintiff must prove that the defendant “[k]nowingly makes or uses … a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the State or a political subdivision.” Nev. Rev. Stat. § 357.040(1)(g). To support his claim, the plaintiff alleged that the lenders made false representations in naming MERS as a beneficiary to the recorded deeds of trust and the notes in order to avoid paying the recording fees in the various counties of Nevada.

However, the court found that the plaintiff failed to successfully state a claim of liability under the statute because he failed to allege that the lenders had an obligation to the Counties to record the assignments and pay the relevant recording fees. Furthermore, the court found that there was no obligation to do so under Nevada law. As a result, the court affirmed the decision to dismiss the claim.

 

Alleged Violation of Deceptive Trade Practice Dismissed by Nevada Court

In Medina v. Quality Loan Service Corp., et al., No. 12-CV-00428-KJD-PAL (D. Nev. Oct. 25, 2012), the district court in Nevada addressed the plaintiff’s claim of a violation of the Nevada Deceptive Trade Practices Act.

The Act prohibits sellers from making false statements or misrepresentations about their goods or services. However, the court found that the Act doesn’t apply to most real estate loan transactions. The use of the Deceptive Trade Practices Act was only recognized once by the Nevada Supreme Court in Betsinger v. D.R. Horton, Inc., 232 P.3d 433, 436 (Nev. 2010). However, in that case, the plaintiff purchased a home after the defendant offered a 4.6% mortgage interest rate. After entering a purchase contract and receiving the plaintiff’s deposit, the defendant increased the interest rate to 6.5%. As a result, the plaintiff cancelled the contract and sued for the deposit after the defendant refused to return it. The Supreme Court upheld a jury finding that the defendant violated the Deceptive Trade Practices Act.

In this case, the court distinguished the facts because there was no allegation of a bait and switch, the defendant was not selling a house and the plaintiff was not purchasing one, and the defendant was not withholding a deposit.

The plaintiff also alleged there was a wrongful foreclosure because the party that initiated the foreclosure proceedings, Quality, had no authority to do so. The plaintiff argued that the only person who can enforce the note is the current note holder, not the party in possession of the deed of trust. This theory is a challenge to the split note theory that was addressed in Edelstein v. Bank of New York Mellon, 128 Nev. Adv. Op. 48, *2-3, 286 P.3d 249, ___ (2012). The court summarized the court’s opinion that supported the split note theory and rejected this challenge as well.

As a result, the court granted the defendant’s motion to dismiss this case.

 

Plaintiff’s Claim Against MERS Time-Barred in Nevada

In Haischer v. Mortgage Electronic Registration Systems, Inc., et al., No. 2-11-cv-01786-GMN-RJJ (D. Nev. Sep. 17, 2012), the plaintiff challenged a foreclosure after the property was sold at a foreclosure auction. The plaintiff requested an order to set aside the foreclosure sale and cancel the Trustee’s deed due to a violation of the Nevada Revised Statutes § 107 regarding deficiencies of the notice of default. Failure to comply with the notice provisions of § 107 warrant voiding a sale by the court. The defendants made a motion to dismiss the claim, which the court ultimately granted.

In this case, the plaintiff failed to bring the claim within the proper timeframe (within 90 days after the date of the sale or within 120 days of receiving actual notice of the sale). As a result, the court found that her claim was time-barred.

However, the court continued to address the plaintiff’s deficient notice claims.

The plaintiff first challenged the authority of ReconTrust, the organization that recorded the notice of default, arguing that they were neither a beneficiary or trustee at the time they recorded the notice. The court stated that in Nevada, “an assignment of the beneficial interest in a deed of trust need not be recorded in order to be valid.”

In response, the defendants submitted evidence that MERS was initially assigned the beneficiary interest in the deed of trust. MERS then assigned a beneficiary interest to BAC Home Loans Servicing, L.P. which was recorded in the proper county. BAC Home Servicing then named ReconTrust the Trustee. As a result, the court found that ReconTrust had the authority to record the notice of default.

The plaintiff then challenged the actual notice of default, alleging there were deficiencies in the notice that was required by the statute. However, the court found that the deficiencies the plaintiff alleged were either not required by the statute or were sufficiently addressed by the notice.

After addressing the plaintiff’s underlying claim, the court granted the defendant’s motion to dismiss.

Class Action Recording Fee Suit in Missouri Dismissed

Jackson County, Missouri v. MERSCorp, Inc., et al., No. 12-0665-CV-W-ODS (W.D. Mo. Jan. 14, 2013) is a suit by Jackson County to recover lost recording fees resulting from the use of MERS. This suit is a class action law suit where the plaintiff county also sought to recover lost fees for all of the counties in Missouri along with St. Louis. The plaintiffs argued that each assignment of a deed of trust within their respective county (or within St. Louis) must be recorded and a recording fee must be paid. In addition to the lost revenue, they also argued that their land records are inaccurate or incomplete because of MERS.

The defendants argued that the plaintiff lacks standing because it cannot recover fees for assignments it never recorded and there is no duty under Missouri law to record deed of trust assignments.

The Court found there was standing because the plaintiff alleged an injury to its financial interest caused by the lost recording fees and inaccurate county land records.

The defendants also argued that there was no private right of action to enforce any violations of statutes regarding recording the assignments. However, the Court found the plaintiffs were not enforcing any statutory requirement to record assignments because the Missouri recording statutes only “encourage” recording, not require them.

The plaintiffs argued the defendants were unjustly enriched because each assignee retained the original assignor’s priority by listing MERS as the beneficiary. However, the Court finds because there is no duty to record assignments, there cannot be unjust enrichment. The defendants did not act improperly by not recording further assignments since it is permissible under Missouri statute.

A claim of civil conspiracy was also dismissed because it relied on the finding of unjust enrichment as the basis of the conspiracy.

Plaintiff also argued that a prima facie tort occurred. This claim requires the plaintiff to establish: (1) an intentional lawful act by defendant; (2) an intent to injure the plaintiff; (3) injury to plaintiff; and (4) insufficient justification for defendant’s action. However, this claim is disfavored under Missouri law, particularly when there are other remedies or tort claims available. However, the defendants argued there was no intent to harm the plaintiffs. The court found no evidence or allegation of malicious intent to injure the plaintiff, as required to satisfy the second prong of the claim. As a result, the claim is dismissed.

The plaintiff’s requests for a declaratory judgment and injunctive relief are dismissed because they are remedial actions. Since the court has not found a viable claim for the plaintiff to request remedial action, the court denied the requests.

The court ultimately finds that the plaintiff must convince the legislature to change the statute to create a legal duty to record assignments in order to recover from the defendants (with a private right of action that the plaintiffs can avail of). As a result, the motion to dismiss the claim was granted.