Author Archives: Devon Avallone

About Devon Avallone

Devon is a 3rd year evening student at Brooklyn Law School to graduate in 2015 with a Certificate in Real Estate Law. In 2009, she graduated from Bucknell University with a B.A., majoring in Psychology with a minor in Economics. Devon is currently a law clerk at Goldstein Hall, PLLC in the transactional real estate department. Devon previously worked as a foreclosure litigation assistant at Knuckles, Komosinski & Elliott, LLP for 2 years, and recently worked as a legal assistant at Lewis & Fiore, Esqs. and Avanzino & Moreno, P.C. Devon is also an avid equestrian and continues to train horses in Westchester County.

Deutsche Bank Fails to Sufficiently Prove Ownership in Maine Supreme Judicial Court

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In Deutsche Bank Nat’l Trust Co. v. Wilk, 2013 ME 79, 76 A.3d 363 (Me. 2013), the Maine Supreme Judicial Court vacated a judgment of foreclosure for Deutsche Bank on appeal by homeowner for Deutsche Bank’s failure to show ownership of the mortgage. Wilk procured a loan from Luxury Mortgage Company in 2005 with MERS named as nominee. Deutsche Bank commenced foreclosure proceedings after homeowners’ default in 2010, going to trial in 2012. The trial court found that Deutsche Bank provided evidence sufficient to merit foreclosure authority via a chain of assignments showing it was the holder of both the note and mortgage under 14 M.R.S. 6321. On appeal, the court notes that while Deutsche Bank evidenced its ownership of the note, it failed to adequately document its ownership of the mortgage, citing flaws in the chain of assignments. The court explains that the chain runs from MERS to IndyMac, then to FDIC as receiver for IndyMac to OneWest Bank, and finally OneWest Bank to Deutsche Bank; the problem is the date on the final assignment is two weeks prior to FDIC’s transfer to OneWest, meaning OneWest lacked authority to assign the mortgage at the time of its assignment to Deutsche Bank. Deutsche Bank attempted to rely on an earlier 2010 assignment from FDIC to Deutsche Bank, but provided no explanation for why the same mortgage as assigned twice by FDIC. As a result of the inconsistencies presented, the court found “the April 2010 assignment of the mortgage to Deutsche Bank, upon which the [trial] court relied, is not a ‘source whose accuracy cannot reasonably be questioned’ as a means of ‘accurate and ready’ proof of Deutsche Bank’s ownership of the mortgage.” See M.R. Evid. 201(b)(2); see also HSBC Mortg. Servs., Inc. v. Murphy, 2011 ME 59.

The court further found that the theory of estoppel by after-acquired property does not apply, and Deutsche Bank failed to prove its ownership under this theory; “the disputed assignment from OneWest Bank to Deutsche Bank did not involve a warranty deed or contain any factual allegation that OneWest Bank would need to contradict to assert title to the mortgage. The assignment purports to transfer ‘all interest’ OneWest Bank then held in the mortgage, without alleging that OneWest Bank had any interest to convey or making any other statement that could be interpreted to estop OneWest Bank from claiming title.” Pike v. Galvin, 29 Me. 183, 185 (1848); Bennett, 90 Me. at 461-62, 38 A. 372. Deutsche Bank was unable to prove any harmless error existed in the assignments, and therefore the trial court erred in granting the judgment of foreclosure.

Indiana Court of Appeals Holds HSBC Assignment Valid Despite Blank and Undated Allonge

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In Buchanan v. HSBC Mortg. Servs., 993 N.E.2d 275, 2013 Ind. App. LEXIS 404, 2013 WL 4507932 (Ind. Ct. App. 2013), the Indiana Court of Appeals held that HSBC had the right to foreclose on the homeowners’ mortgage, dismissing homeowners’ allegations that the HSBC assignment was unauthorized. The Buchanans procured a loan from Accredited Mortgage Lenders in 2006, which named MERS as mortgagee and nominee. Later that year, MERS sold the loan to HSBC, who began foreclosure proceedings in 2008 after the homeowners defaulted. HSBC’s motion for summary judgment was granted in 2012, which homeowners appeal from here. The Indiana Court of Appeals upheld the decision of the trial court, finding that the homeowners presented no evidence that MERS lacked authority to assign the note and mortgage. The Buchanans alleged that the assignment was rendered invalid because an endorsement was not attached to the note in the complaint, and because the allonge was blank and not dated. However, the court held the assignment was valid and endorsed to HSBC in blank under Indiana Code Section 26-1-3.1-109(a)(2) which states “A promise or order is payable to bearer if it: . . . (2) does not state a payee,” showing that HSBC was the holder of the “bearer instrument” pursuant to Indiana Code Section 26-1-3.1-301(1). The court further found no evidence that the allonge was not affixed to the note, and states that HSBC is permitted to amend its complaint to attach the allonge to the note. Homeowners also failed to produce evidence that the signatory of the HSBC assignment lacked authority to sign on behalf of Accredited. Ultimately the court found that no issue of genuine or material fact existed.

BAC Not Required to Evidence Holding Note in Texas Fourth Court of Appeals

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In Lowery v. Bank of America, N.A., 2013 Tex. App. LEXIS 13114 (Tex. App. San Antonio Oct. 23, 2013), the Texas Fourth Court of Appeals affirms summary judgment for BAC Home Loan Servicing, LP dismissing homeowner’s claim that without evidence of holding the note, BAC lacked standing to foreclose. The homeowner sought an injunction from the nonjudicial foreclosure initiated by BAC in 2011, alleging wrongful foreclosure as the note did not name BAC or MERS, and further alleging that MERS improperly assigned the note to BAC. The court cites the Reinagel holding that the assignment of mortgage presumptively assigns the note as well, and that BAC is not required to show evidence of holding the note. On these grounds, the court found the homeowner produced less than a scintilla of evidence to show BAC lacked authority to foreclose, and further failed to show the signatory at MERS lacked authority.

Homeowners in Fifth Circuit Fail to Defeat Deutsche Bank Assignments

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In Reinagel v. Deutsche Bank Nat’l Trust Co., 2013 U.S. App. LEXIS 22133 (5th Cir. Tex. July 11, 2013), the U.S. Court of Appeals for the Fifth Circuit upheld the Texas district court’s decision to grant Deutsche Bank’s motion to dismiss the homeowners’ complaint alleging the loan assignments were invalid due to robo-signing. The Reinagels refinanced their property in 2006 with Argent Mortgage Company, LLC who sold the loan to Deutsche Bank where it was pooled and sold to investors. The sale of the loan to Deutsche Bank was not documented until 2008, when the assignment was executed. The first assignment of the deed of trust failed to reference the promissory note. A second assignment was executed in 2009, expressly naming the subject note.

After the homeowners defaulted on payments, the state court granted the order for foreclosure in 2010, naming Deutsche Bank as mortgagee with right to foreclose. The Reinagels brought this action for a temporary injunction alleging that the assignments were “robo-signed” and as such facially void. They further argued that the assignments violated the pooling and service agreement (“PSA”), which did not permit transfers into the Deutsche Bank trust after October 1, 2006. The case was removed to the district court on diversity grounds, where the court later granted Deutsche Bank’s motion to dismiss the complaint. The Fifth Circuit affirmed this decision on appeal, finding the Reingals’ challenge of the the assignments unconvincing. The court held that although a non-party to a contract cannot enforce said contract, the obligor may defend on any ground which renders the assignment void, giving homeowners standing as they assert the assignments are facially void. The first assignment was held valid, as the court notes “the transfer of a mortgage presumptively includes the note secured by the mortgage” even if it doesn’t expressly reference the note; the validity of the second assignment is irrelevant here. Additionally, the Reinagels cited no precedent to support invalidating the assignments solely on account of robo-signing, or that violations of the PSA would invalidate the assignments. Further, the court did not find sufficient evidence of robo-signing in regard to either assignment. The court is careful to note that its decision is a narrow one, and provides a warning to banks: “we merely reaffirm that under Texas law facially valid assignments cannot be challenged for want of authority except by the defrauded assignor. We do not condone ‘robo-signing’ more broadly and remind that bank employees or contractors who commit forgery or prepare false affidavits subject themselves and their supervisors to civil and criminal liability.” Id at 12.

Bates Fails to Shake MERS’ Standing in Indiana Superior Court

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In Bates v. MERS, et al., 49D12-0911-CT-051734 (June 22, 2012) Bates filed suit against MERS and several lenders in the mortgage industry on behalf of all counties in Indiana, alleging that the MERS system is an attempt to falsify records to avoid paying recording fees. The Marion Superior Court dismissed Bates’s complaint for lack of subject matter jurisdiction under the Indiana Whistleblower and False Claims Act, as Bates was not an original source to the information as required by the Act. The court notes that the MERS system has been discussed at length publicly, in prior cases, by media outlets, and by MERS itself; Bates’s allegations against MERS merely reiterate these points, and therefore cannot qualify for whistleblower status under the Act. Furthermore, Bates claimed he obtained this information in June 2009, when the information was already public, so “his knowledge cannot be direct and independent”.

This is Bates’s sixth failed attempt against MERS, as he filed similar actions in California, Hawaii, Nevada, Tennessee, and Washington, D.C. MERS comments on the case here.

 

Indiana Supreme Court Allows Citimortgage to Intervene in ReCasa’s Foreclosure Proceeding

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In Citi v. Barnabas, 975 N.E.2d 805 (Ind. 2012), the Indiana Supreme Court held that Citimortgage had a right to intervene in ReCasa’s foreclosure proceeding and sale since Citi held a first mortgage on the property, reversing the decision of the Court of Appeals and trial court.

The homeowner, Barnabas, granted a first mortgage on the property in 2005 to Irwin Mortgage Corp. (Irwin) with MERS designated as nominee and mortgagee, which later assigned the mortgage to Citimortgage (Citi). In 2007, Barnabas granted a second mortgage to ReCasa. Barnabas defaulted on the second mortgage and ReCasa commenced foreclosure proceedings in 2009. In response to the foreclosure proceedings, Irwin filed a disclaimer of interest in the property. When Citi learned the property was already sold through ReCasa’s foreclosure sale, Citi filed a motion to intervene, which was denied by the trial court. The Court of Appeals upheld the trial court’s decision.

The Supreme Court found the trial court erred in denying Citi’s motion, as ReCasa didn’t dispute the validity of the assignment from MERS to Citi, but rather argued that MERS lacked a property interest, and therefore so did Citi. However, the court stated that “the assignee of rights under a contract stands in the shoes of the assignor and can assert any rights that the assignor could have asserted,” citing Lake Cnty. Trust Co. v. Household Merch., Inc., 511 N.E.2d 512, 514 (Ind. Ct. App. 1987) giving MERS the same property interest as the original lender.

When examining the mortgage language, the court found MERS’s designation as both “nominee” and “mortgagee” to be conflicting based on standard definitions for both terms, rendering the mortgage ambiguous. To determine MERS’s interest, the court looked to the parties’ intent and found that the legal title held by MERS was sufficient to give MERS foreclosure rights, acting as agent for the lender, Irwin.

ReCasa further argued that Irwin’s disclaimer of interest extinguished MERS’s property rights. The court notes that MERS has an agency relationship not only to Irwin, but also to all its member banks, and therefore does not disclaim the interests of another member bank in the property, such as Citi.

Although Citi’s motion to intervene was untimely, the court held that if Citi were not permitted to intervene, its interest would be destroyed in its entirety, prejudicing Citi. The court further noted that although intervention is typically “disfavored,” it is appropriate in certain “extraordinary and unusual circumstances,” particularly when “the petitioner’s rights cannot otherwise be protected.” Bd. of Comm’rs of Benton Cnty. v. Whistler, 455 N.E.2d 1149, 1153–54 (Ind. Ct. App. 1983). Furthermore, Citi’s delay in filing was a direct result of ReCasa’s failure to notice either Citi or MERS of the foreclosure proceedings. ReCasa argued that notice to an attorney representing Citi in the Barnabas bankruptcy proceeding provided Citi with actual knowledge of the foreclosure. But the court held that “actual knowledge of the suit does not satisfy due process or give the court in personam jurisdiction.” Overhouser v. Fowler, 549 N.E.2d 71, 73 (Ind. Ct. App. 1990) (quoting Glennar Mercury Lincoln, Inc. v. Riley, 167 Ind. App. 144, 152, 338 N.E.2d 670, 675 (1975)).

The court was hesitant to outline MERS’s rights as a mortgagee under Indiana statute, though it noted the original statute might soon require modernization to account for changes in the mortgage industry.

Michigan Supreme Court Rules MERS’s Foreclosure Valid

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The Michigan Court of Appeals considered two cases involving MERS-related foreclosures, Residential Funding Co., LLC v. Saurman and Bank of New York v. Messner, 292 Mich. App. 321 (April 21, 2011) deciding whether MERS is an entity permitted to foreclose by advertisement or if it must go through a judicial foreclosure. The Court of Appeals held that MERS doesn’t meet the statute’s requirements to foreclose by advertisement, however, the Michigan Supreme Court reversed the decision, holding that MERS had standing to foreclose.

In both cases the original lender was Homecoming Financial, LLC, with the mortgages providing rights to foreclose upon default. MERS was named as the mortgagee and nominee for the lender. After default, MERS began foreclosure by advertisement on both properties, purchasing the properties at their respective sales, and quit-claiming title to the plaintiffs, Residential Funding and Bank of NY. Upon eviction, the homeowners questioned MERS’s authority but were denied by the district court. The circuit courts affirmed the district court’s decision, and the Michigan Court of Appeals considered whether MERS, as mortgagee but not note-holder, can foreclose non-judicially by advertisement.

The Court of Appeals discussed implications of the MERS system, which allows entities to transfer loans without having to record the transactions, since the mortgagee, MERS, is never changed despite the change of ownership among other entities. The statute in question, MCL § 600.3204(1)(d), states that a party may foreclose by advertisement if: “the party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” Since MERS is not the servicing agent or the owner of the debt, the Court of Appeals held MERS lacked authority to foreclose by advertisement under the statute. The court further explained “in order for a party to own an interest in the indebtedness, it must have a legal share, title, or right in the note,” and that an interest in the mortgage is not enough, as these are two separate instruments with different rights. The mortgage provides an interest in the property, while the note documents a debt to be repaid. Since the statute requires that the foreclosing party must own an interest in the indebtedness, the court held that MERS cannot act on behalf of Homecoming as agent or nominee to advertise the foreclosure. The decision of the Circuit Court enforcing the eviction was reversed, granting defendant-homeowners’ summary judgment.

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Judge Wilder dissented, believing MERS to have an ownership interest in the loan by way of the language in the mortgage giving MERS explicit rights to foreclose upon default. As mortgagee, MERS owned a “contractual interest” in the indebtedness, with the ability to take any action required by it, including its right to foreclose if the debt is not paid. The purpose of the mortgage is to create a security interest “specifically linked to the debt” to ensure payment. Since the mortgage gives MERS the right to “take any action required of it,” MERS has “a greater interest than just an interest in the property as security for the note,” giving MERS the right to act on behalf of Homecomings.

Plaintiffs Residential Funding and Bank of NY appealed the decision and the case was considered by the Michigan Supreme Court in late 2011, ultimately reversing the Court of Appeals order. 807 N.W.2d 412, rev’d 805 N.W.2d 183 (Mich. 2011). The Supreme Court agreed with the dissenting opinion from the Court of Appeals, holding that the foreclosure was valid. MERS has an ownership interest in the indebtedness, and therefore the right to foreclose because MERS’s “contractual obligations as mortgagee were dependent upon whether the mortgagor met the obligation to pay the indebtedness which the mortgage secured.” Though this does not give MERS an ownership interest in the note, the court held that the note and mortgage do not need to be held by the same entity in order to foreclose under Michigan law.