Author Archives: Robert Huberman

About Robert Huberman

Robert is finishing up his second year at Brooklyn Law School and expects to graduate in May 2014 with the Brooklyn Law School Real Estate Law Certificate. He received his B.A. from SUNY Binghamton University majoring in Philosophy, Politics, and Law, with a minor in History. He is currently interning at the New York City Department of Buildings and recently researched and wrote draft opinions on various mortgage and foreclosure issues, while interning with the Honorable William H. Pauley, in the Southern District of New York. This summer, he looks forward to clerking at Goldstein Hall PLLC where he will be working on affordable housing development and finance projects.

Eighth Circuit Court of Appeals Holds that Bank, as Holder of legal Title, could Commence Foreclosure-by-Advertisement

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In Stein v. Chase Home Fin., LLC, 662 F.3d 976 (8th Cir. 2011), The United States Court of Appeals, Eighth Circuit, held that the holder of legal title to a mortgage did not need to possess the corresponding promissory note before instituting non-judicial foreclosure by advertisement.

In October 2006, Stein (mortgagor) refinanced his home. In exchange for a $484,000 loan, Stein signed a promissory note and granted Chase Bank a mortgage on his home to secure payment of the note. The terms of the note and mortgage made both instruments freely assignable or otherwise transferable without giving prior notice to Stein. In January 2007, Stein obtained a loan from National City Bank in the amount of $100,000, signed a promissory note, and granted National a second mortgage on his home to secure payment of the loan. Both mortgages were recorded in Hennepin County.

Stein defaulted on Chase’s mortgage by failing to make a loan payment. Chase notified him that a foreclosure proceeding would commence. On September 28, 2008, Chase Bank assigned the Mortgage to Chase Home Finance. Subsequently, Chase Home Financial commenced foreclosure and bought the property. Stein had six months to redeem the property by paying Chase the amount it paid at the sheriff’s sale plus interest. After Stein failed to exercise his right of redemption, National exercised its statutory right of redemption as a junior lienholder and purchased Stein’s home from Chase.

Stein then brought this law suit in state court challenging the validity of both the foreclosure of his home by Chase Home Financial, LLC, and the redemption of his home by a junior lienholder, National City Bank. The case was removed to District Court where Chase’s motion for summary judgment was granted. Stein appealed alleging that: Minnesota law required Chase to hold both the mortgage and the promissory note at the time of foreclosure, genuine issues of material fact remained as to whether Chase held the note, and National’s redemption was invalid because the foreclosure was invalid.

First, the court cited Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487 (Minn.2009) for the proposition that a party can hold legal title to the mortgage without holding an interest in the promissory note. The court stated that a mortgagee of record does not lose legal title when the mortgagee transfers interest in the promissory note. In other words, the right to enforce the mortgage through foreclosure by advertisement lies with the legal, rather than equitable, holder of the mortgage. Here, Chase Bank was the mortgagee of record and held legal title to Stein’s mortgage. Chase Bank then assigned the mortgage to Chase Home Financial. Thus, Chase Home Financial was the party entitled to commence a foreclosure by advertisement, even if the promissory note had been transferred to someone else.

Second, the court held that the District Court properly granted Chase Home Financial’s motion for summary judgment, because Stein failed to raise genuine issues of material fact showing Chase Home Financial was not the holder of the note at the time of foreclosure. The record indicated that Chase Bank transferred the mortgage and the promissory note to Chase Home Financial on September 28, 2009—before they commenced foreclosure by advertisement. Additionally, Stein did not present any evidence in District Court that contradicted the clear language of the September 2008 “Assignment of Mortgage” from Chase Bank to Chase Home Financial.

Finally the court rejected Stein’s arguments regarding the validity of National’s redemption. Because Stein’s challenge directly tied to his claim that Chase Home Financial’s foreclosure was invalid—and considering that the court concluded that the foreclosure was valid—Stein’s arguments failed.

Minnesota District Court Holds that a Mortgagee is not Required to Have an Interest in the Promissory Note in Order to Foreclose

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In Butler v. Bank of Am., N.A., CIV. 11-461 DWF/TNL, 2011 WL 2728321 (D. Minn. July 13, 2011), Minnesota District Court denied the Butlers’ motion to remand and granted Bank of America, BAC Homes Loans Servicing, LP, and Peterson, Fram & Bergman, P.A. (PFB)’s motion to dismiss. The Butlers (homeowners) and “all others similarly situated” motioned to remand the case to state court while the Banks filed a motion to dismiss. In addition, PFB, who acted as foreclosure counsel for the Banks, also filed a motion to dismiss.

The Butlers are Minnesota homeowners who alleged that the Banks asserted an invalid and voidable mortgage against Butlers’ home. The Butlers alleged that 1) Defendants did not have actual physical possession of the Butlers’ original note, and 2) the Banks or their predecessors in interest securitized and sold the original note into a pooling and servicing agreement, and in the process of securitizing the note and mortgage, the Banks predecessors in interest purported to transfer legal title to the note and mortgage to a separate and distinct legal entity. Thus, the Butlers alleged that the Banks did not have valid, clear legal title to the original note and could not assert rights under the Mortgage nor remove the Butlers from their home. The Butlers also alleged that the original note was not an unconditionally enforceable negotiable instrument and therefore the banks could not assert the right to foreclose on the mortgage.

The Butlers supported their motion to remand by claiming that the federal district court did not have original jurisdiction under the Class Action Fairness Act (CAFA). The Butlers alleged that the Banks failed to offer evidence showing that the amount in controversy exceeded $5,000,000 and that the putative class contains at least 100 members. The Court noted, however, that the Banks had a litigation specialist testify that “BAC has researched its serving system and determined that there are more than 100 loans secured by property in the state of Minnesota that were acquired by Countrywide Bank, FSB, and subsequently acquired by BOA… records of these loans show that [the] remaining outstanding principle… exceeds, $25 million.” Thus, the Court concluded that the Banks offered sufficient evidence that the jurisdictional requirements were met under the definition of the putative class.

The Butlers also supported their motion to remand by alleging that the Banks offered nothing in support of their alternative claim of jurisdiction under 28 U.S.C. § 1332(a). The Banks contended that the Court had subject matter jurisdiction, via the parties’ diversity of citizenship, because the Butlers fraudulently joined PFB. The Court noted that when a Plaintiff joins a non-diverse party, Defendant may avoid remand to state court by demonstrating that the non-diverse party was fraudulently joined. Here, the Butlers fraud claim is based on the legal theory that the Banks cannot assert the right to foreclose because the Butlers’ original note was not an unconditionally enforceable negotiable instrument. The Court held that this legal theory had no basis in Minnesota law, and thus concluded that the Court had subject matter jurisdiction over the action.

Although the Butlers did not mention any wrongdoing on behalf of PFB, in response to PFB’s motion to dismiss, the Butlers claimed that they alleged fraud against all Defendants including PFB. Their claim depended upon the legal theory that only the holder of the promissory note may foreclose on a mortgage. However, the Minnesota Supreme Court in Jackson v. Mortgage Elec. Registration Sys., 770 N.W.2d 487 (2009) rejected this argument. Thus, the Court granted PFB’s motion to dismiss.

With regards to the Banks’ motion to dismiss, the Court stated that although the Butlers asserted sixteen causes of action, their sole wrongdoing alleged was that the Banks foreclosed on their property without holding the promissory note and without the legal authority to do so. However, the Court in Jackson held that a mortgagee is not required to have any interest in the promissory note in order to foreclose. Because the Butlers did not allege that the foreclosure proceeding was initiated on behalf of an entity other than the mortgagee holding legal title, and since documents submitted by the parties establish that the Mortgage was assigned to BAC; the assignment was recorded; and that the foreclosure sale was conducted in the name of BAC as record holder of legal title, the Court granted the Banks’ motion to dismiss.

Minnesota District Court Holds that MERS Could Foreclose on Homeowners’ Property even though MERS was not the Holder of the Promissory Note

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In Kraus v. CitiMortgage, Inc., CIV. 11-3213 DWF/FLN, 2012 WL 1581113 (D. Minn. May 4, 2012), the Minnesota District Court found that homeowners/borrowers’ complaint lacked particularity.

Plaintiffs are thirteen homeowners and loan borrowers who executed promissory notes with six different lenders that relate to seven different properties. According to the complaint, five notes were secured by mortgages executed in favor of MERS and two were secured by mortgages executed in favor of CitiMortgage.

Plaintiffs allege that: 1) they executed original promissory notes and mortgages with entities different from Defendants who now claim the legal right to foreclose; 2) Defendants do not have physical possession of the original notes, Defendants sold the original notes through a pooling and servicing agreement, and Defendants purported to transfer legal title to the original notes to a separate and distinct legal entity; 3) Defendants cannot assert the right of foreclosure under the mortgages because they do not have clear legal title to the original notes; and 4) Usset is a law firm acting as an agent for purposes of enforcing defaults on Plaintiffs’ notes and foreclosing their mortgages. Plaintiffs allege that Usset falsely represented that its principal was entitled to foreclose and recorded false documents.

Defendants argue that Plaintiff’s Complaint violated Rule 8 of the Federal Rules of Civil Procedure. Under Rule 8(a)(2), a complaint must include “a short and plain statement of the claim showing that the pleader is entitled to relief. While the Rule 8 pleading standard does not require ‘detailed factual allegations,’ it does demand ‘more than an unadorned, the-defendant-unlawfully-harmed-me accusation.’ A complaint will not suffice if it ‘tenders naked assertion[s]’ devoid of further factual enhancement.’” Here, Plaintiffs’ complaint asserted thirteen causes of action involving thirteen Plaintiffs, seven different mortgage loans and properties, and four separate Defendants. Plaintiffs did not specify which factual claims were asserted against any particular Defendant. Thus, the Court concluded that such pleading was inadequate and that Rule 8 required greater specificity than found in Plaintiffs’ complaint.

Regardless, based on Jackson v. Mortg. Elec.  Registration Sys., Inc.,770 N.W.2d 487, 500 (2009); Stein v. Chase Home Finance, LLC, 662 F.3d 976, 980 (8th Cir. 2011); and Butler v. Bank of Am., Civil no 11 461, 2011 WL 2728321, at *6 (D. Minn. July 13, 2011), it does not matter whether Defendants could establish that they held the promissory notes in order for Defendants to initiate a foreclosure by advertisement. In addition, Plaintiffs did not allege that Defendants were not the record owners of any mortgage at the time they initiated a foreclosure by advertisement. Further, Plaintiffs did not allege facts showing a defect in the mortgage instrument or mortgage assignment. Thus Plaintiffs failed to establish why Defendants were not entitled to foreclose.

In addition, the court held that Plaintiffs’ fraud claim against Usset fails. Plaintiffs’ fraud claim depended upon the discredited argument that only the holder of the promissory note may foreclose on a mortgage by advertisement. Plaintiffs also failed to allege their fraud claim with sufficient particularity. Thus, ultimately, the court granted Defendants’ motion to dismiss in its entirety.

Oregon District Court Holds that MERS could Assign Deed of Trust and Wells Fargo Bank could Initiate Foreclosure Proceedings

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In Neilson v. Wells Fargo Bank, NA, CV 10-1516-MO, 2011 WL 3476523 (D. Or. Aug. 9, 2011), the Oregon District Court granted Wells Fargo Bank’s motion for summary judgment because Neilson (homeowner) failed to show a likelihood of success and failed to raise serious questions on the merits.

Neilson moved for preliminary injunction to prevent the foreclosure of his home. The Court noted, however, that a preliminary injunction will only be granted if Neilson could show a likelihood of success on the merits and if Neilson could show that serious questions were raised on the merits. Here, Neilson made three claims against Wells Fargo.

First, Neilson claimed that MERS was not the beneficiary of the deed of trust and thus had no right to assign it. The court noted, however, that MERS was the proper beneficiary as evidenced by the deed of trust, and had the right to exercise steps necessary to recover the debt owed by the lender.

Second, Neilson claimed that Wells Fargo engaged in fraud. But Neilson failed to provide adequate details supporting his claim. Thus, under Rule 9(b) of the Rules of Civil Procedure, Neilson’s claim did not raise serious questions on the merits.

Lastly, Neilson claimed that Wells Fargo violated the Real Estate Settlement Procedures Act (RESPA) by failing to provide him with “information regarding the owner of the note, documentation of ownership of the note and deed of trust, and the role played by MERS in the underlying transaction.” This argument failed as well, however, because RESPA violations are penalized with monetary damages, not by setting aside foreclosure proceedings.

The court ultimately held that Neilson failed to show a likelihood of success on the merits and failed to show that serious questions were raised on the merits. Thus the Court granted Wells Fargo’s motion for summary judgment.

California Court of Appeals Affirmed Trial Court’s Decision Granting MERS Authority to Initiate Foreclosure Proceeding

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In Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149, 121 Cal. Rptr. 3d 819 (2011), the California Court of Appeals in the Fourth District held that there was no legal authority which required the Court to entertain a borrower’s cause of action.

Gomes borrowed $331,000 from lender KB Home Mortgage Company to purchase real estate. Gomes executed a promissory note which was secured by a deed of trust. The deed identifies MERS as a nominee for the lender and a beneficiary under the security instrument. The deed that Gomes signed states that Gomes “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 has the right: to exercise any or all of those interest, including, but not limited to, the right to foreclose and sell the Property…” Gomes eventually defaulted on his loan payments, was mailed a notice of default, and was mailed an election to sell which initiated a non-judicial foreclosure process. Gomes subsequently filed a lawsuit against Countrywide (loan servicer), MERS, and ReconTrust.

On appeal, Gomes argued that MERS did not have authority to initiate the foreclosure because the current owner of the Note did not authorize MERS to do so. Gomes sought damages in an amount not less than $25,000. Gomes also argues that Civil Code § 2924(a)—allowing borrower, before his property is sold, to bring a civil action to see whether person electing to sell the property is authorized to do so—provides the legal authority for Gomes to assert the claim he made in his first cause of action. Countrywide demurred Gomes’s first and second cause of action.

The Court held that Gomes failed to identify a legal authority for his lawsuit. Nothing in Civil Code §2924—which sets out California’s non-judicial foreclosure scheme—suggests that a judicial proceeding is permitted or even contemplated. There is nowhere in the statute that provides for judicial action to determine whether the person initiating the foreclosure is indeed authorized, and the Court saw no ground for implying such an action. The Court was worried that if they recognized the right to bring a lawsuit in order to determine a nominee’s authorization to proceed with a foreclosure on behalf of the note-holder, the non-judicial nature of the process would be undermined and introduce the possibility of lawsuits filed solely to delay valid foreclosures. Gomes further argues that the Legislature may not have had time to fully respond to this type of situation, but the Court advised Gomes to address his arguments to the Legislature, not the courts.

Nevertheless, even if there was a legal basis to determine whether MERS had the authority to initiate the foreclosure proceeding, Gomes’ claim would still lack merit; Gomes agreed, by executing the deed, that MERS has the authority to initiate a foreclosure as per the provisions of the deed. Finally, because Gomes conceded that he has no specific information about assignments of the note, he would be unable to plead on information and belief, based on facts leading him to believe they were true, a specific theory that would warrant amending his complaint. Accordingly, the Court concluded that the trial court properly sustained Countrywide’s demurrer without leave to amend.

Oregon District Court Holds MERS Lacks Standing Because Not All Mortgage Assignments were Recorded

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In Burgett v. Mortgage Elec. Registration Sys., Inc., 09-6244-HO, 2010 WL 4282105 (D. Or. Oct. 20, 2010), the Oregon District Court granted MERS’s motion for summary judgment in regards to Burgett’s Real Estate Settlement Procedures Act (RESPA) claim, and denied MERS motion in regards to Burgett’s claim for declaratory relief and breach of contract.

Burgett brought action against MERS and Aurora Loan Services, LLC alleging predatory lending with respect to the refinancing of Burgett’s home mortgage. Burgett entered into a loan agreement in March 2007, to refinance his home mortgage. MERS was listed on the Deed of Trust as the beneficiary. In April 2009, MERS executed an instrument entitled Substitution of Trustee under which Defendant Cal Western Reconveyance Corporation was appointed trustee under the deed of trust. Cal Western Reconveyance recorded on April 29, 2009. On April 28, 2009, Cal Western Reconveyance executed a notice of default and election to sell, and trustee’s notice of sale for September 3, 2009. Burgett brought this action on September 9, 2009, before a foreclosure sale could occur.

Burgett claimed MERS violated: 1) the Truth in Lending Act (TILA), 2) RESPA, 3) the Oregon Mortgage Broker Act, and claimed breach of contract. MERS motioned for summary judgment. At the outset, Burgett withdrew his TILA claim. Accordingly the Court dismissed Burgett’s TILA claim.

Next, Burgett claimed that MERS violated RESPA because it failed to properly respond to his written inquiries regarding his loan. At oral arguments, Burgett conceded that there were no pecuniary damages incurred as a result of the violation and that he only sought statutory damages. The Court stated that Burgett had to allege a breach of RESPA duties and that the breach resulted in actual damages, in order to survive summary judgment. Since Burgett failed to do so, the Court granted MERS summary judgment on this claim.

Burgett further contended that under the Oregon Trust Deed Act, MERS and Cal Western could not foreclose on his property because MERS was not a “beneficiary” under the Act. Under Oregon law, a beneficiary means “the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given . . . .” Here, the trust deed specifically designated MERS as the beneficiary.

The Court noted, however, that MERS failed to record assignments necessary for foreclosure. Under Oregon Law, if foreclosure by sale is pursued, all prior unrecorded assignments must be filed in connection with the foreclosure. Here the record did not demonstrate that all the transfers had been recorded. As a result, the Court denied MERS’s motion for summary judgment with respect to Burgett’s claims for declaratory relief and breach of contract.

California Court of Appeal Upheld Beneficiary’s Demurrer to Plaintiff’s First Amended Complaint

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In Arnolds Mgmt. Corp. v. Eischen, 158 Cal. App. 3d 575, 205 Cal. Rptr. 15 (Ct. App. 1984), the California Second District Court of Appeal held that before Arnolds Management Corporation (AMC) could set aside a non-judicial foreclosure under a deed of trust because of irregularities in the sale, AMC must first tender the full amount owing on the senior obligation.

Hicks executed a promissory note secured by a first deed in favor of Safeco as trustee and Eischen as beneficiaries. Two years later, Hicks executed a second deed in favor of Reliable Reconveyance Corporation as trustee and all plaintiffs except AMC as beneficiaries. In 1982, Hicks defaulted under the first deed. But Safeco failed to give AMC statutory notice of sale so the sale was postponed. Later, Safeco incorrectly told AMC that the foreclosure sale would be on July 28, 1982, when instead the sale took place on May 27, 1982. As a result, Safeco conducted the foreclosure sale, the Eischens were the highest bidders, and AMC did not attend or participate. AMC, as junior lienors, wanted to set aside the non-judicial foreclosure sale under a senior lien based on the alleged defect in notice of the sale.

AMC claimed that the rule requiring a tender of the full obligation prior to suit is applicable only to trustor litigants and not to junior lienors who are not personally responsible for the senior obligation. The Court disagreed and held: 1) that a junior lienor, such as AMC, must allege tender of the senior obligation as an essential element of any cause of action based upon irregularities in the sale procedure. Otherwise, AMC could state a cause of action without the necessary element of damage to themselves. 2) AMC’s action must fail because their tender of payment was not an unconditional offer to pay all of the sums necessary to cure the default. AMC’s offered Eischens more favorable terms, but the Court held that their offer did not meet the amount due under the senior obligation. And finally, 3) AMC is not a real party in interest because it did not allege that it had an interest in the property or was a prospective bidder at the trustee’s sale prepared to pay the senior obligation. Thus, the Court ultimately held that AMC did not allege any facts which would allow it to maintain its action.