Author Archives: Ebube Okoli

Massachusetts Bankruptcy Court Grants Assignee Bank’s Motion For Relief, Denies Debtor’s Assignment Challenges and Home Affordable Modification Program Claim

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Aurora, as an assignee of a Chapter 13 debtor’s mortgage, moved for relief from stay to exercise its rights in property, and debtor objected to assignee’s standing and on the ground that his post petition payment default was the result of an improper refusal to modify his mortgage under the government’s Home Affordable Modification Program (HAMP). After considering arguments, the court decided In re Lopez, 446 B.R. 12, 18–19 (Bkrptcy.D.Mass.2011) by granting Aurora’s motion for relief.

The Debtor raised a plethora of questions regarding Aurora’s standing to prosecute the motion for relief. First, he contended that an assignment of the mortgage, without the note, was void. Next, the Debtor argued that MERS, as nominee, could not assign the mortgage because it was merely a title holding entity. Further, he noted that the assignment could not assign the note because MERS never held it.

The Debtor also found fault with the note, complaining that the endorsements were undated, thus concealed the date of the transactions. He further questioned whether the signatory of two of the endorsements could have been an authorized officer as the final endorsement is in blank, the Debtor asserted that the current holder of the note was unknown, making it unclear who authorized MERS to assign the mortgage.

Further, the Debtor attacked the validity of the assignment on the basis that Aurora had not proven that the signatory was sufficiently authorized to execute the assignment.

With respect to HAMP eligibility, the Debtor argued that the monthly payment used to determine borrower eligibility included a monthly payment of principal regardless of whether the expense was included in the Debtor’s current mortgage payment. Furthermore, he contended that Aurora mischaracterized the interest rate as adjustable rather than fixed. As such, the provisions regarding rate resets relied on by Aurora are inapplicable.

In determining whether a creditor has a colorable claim to property of the estate, the court found that Aurora has established a colorable claim to the Property as Mortgagee.

First, the Debtor asserted that the assignment of the mortgage, without the note, was void, but under Massachusetts law, “where a mortgage and the obligation secured thereby are held by different persons, the mortgage is regarded as an incident to the obligation, and, therefore, held in trust for the benefit of the owner of the obligation.” Accordingly, even though MERS never had possession of the Note, it was legally holding the Mortgage in trust for the Note holder.

Second, the Debtor contended that MERS, due to its status as a nominee, could not assign the Mortgage to Aurora. The court rejected this argument as it misapprehended the meaning of “nominee.” Though MERS never held the Note, it could, by virtue of its nominee status, transfer the Mortgage on behalf of the Note holder.

The remainder of the Debtor’s arguments involved challenges to the assignment authorization. Specifically, whether the signatory was authorized to execute the assignment; whether MERS was authorized to assign the mortgage; whether the officers endorsing the note had authorization to do so; whether, given the absence of transaction dates, the endorsements were placed on the note only recently; and the fact that the final endorsement on the note is blank, rendering it a bearer instrument negotiable by transfer of possession alone.

The Court found that the Debtor did not affirmatively state that there were any defects in Aurora’s chain of title; rather he merely suggested that an evidentiary hearing is necessary to be sure. This, the court noted, was not the standard.

Having determined that Aurora is a party in interest, the court considered whether relief from stay was warranted. The court found that the Debtor had not articulated any theory through which he could have asserted standing to obtain the relief he sought.

Massachusetts Trial Court Grants Defendant Bank’s Motion For Summary Judgment in Service Member Civil Relief Act Case

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The Plaintiff in Randle v. GMAC, No. 09 MISC 408202 GHP filed a complaint seeking, among other things, a declaration that defendant GMAC Mortgage did not hold any claim secured by a mortgage recorded with the County Registry, and lacked standing to bring an action against the plaintiff pursuant to the Service Members Civil Relief Act.

Summary judgment was sought by the defendant and granted. It was undisputed that GMAC was the current holder of the mortgage, and therefore there were only two issues and one sub-issue left in contention.

The first issue was whether the plaintiff’s claimed right to challenge the standing of GMAC to have filed the Service Members Case required a judgment in the previous case, declaring the foreclosure invalid; and whether the plaintiff was entitled to the ninety-day right to cure set out in state law.

In deciding the judgment from the Service Member case, the court considered the plaintiff’s argument that due to the chronology of the assignments of the mortgage, and the recording with the registry, relative to the filing and prosecution of the Service Member’s case by GMAC, and also due to evident discrepancy in the date the judgment in the Service Member case was entered on the docket, the foreclosure sale by GMAC cannot be valid and cannot be effective to pass a title.

The court rejected this line of argument and found that such an argument ignored the long established limited scope of Service Members proceedings in Massachusetts. The court noted that a foreclosure is not invalid because title passed on a date prior to the issuance of the judgment in a Service Members case, which has a limited scope and purpose does not permit litigation of broader issues involving the relationship between the borrower and the lender.

Next, the court considered the standing of the mortgagee. The plaintiff claimed a right to challenge the standing of GMAC to have filed the Service Members case. GMAC argued that the standing of a mortgagee to commence a Service Member action was not a live issue in determining the validity of a foreclosure when the mortgage was the record holder of the subject mortgage at the time of the foreclosure. The court agreed with GMAC’s argument.

Lastly, the plaintiff argued that GMAC was unable to foreclose because it did not provide the plaintiff with a 90-day the notice and opportunity to cure a default, as mandated by state law. However, upon review of the designated state law, the court found that the plaintiff was not entitled to such notice, because the specified state law did not apply “to such mortgages whose statutory condition had been voided prior to May 1, 2008.”

Massachusetts District Court Interprets Ibanez Narrowly in Deciding That Plaintiff-Homeowner Lacked Standing to Challenge Bank’s Standing to Foreclose

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This action arose out of an attempted foreclosure by defendant Aurora Loan Services on plaintiff David Kiah’s property. Based on the recent holding from U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011), Kiah sought a declaratory judgment to make the “mortgage on record legally null and void.” The Massachusetts District Court in deciding Kiah v. Aurora Loan Services, LLC, No. 10-40161-FDA, 2011 WL 841282 (D.Mass. Mar.4, 2011) considered the Massachusetts Supreme Court’s holding from Ibanez, along with the plaintiff-homeowners’ arguments, and concluded that granting the defendant’s dismissal was proper.

The court found that the plaintiff’s claims were merit-less, as he challenged neither the note nor the note’s assignment to Aurora. As expressed in Ibanez “By law, the transfer of the note automatically transfers an equitable interest in the underlying mortgage, even without a formal assignment.” An equitable right to the mortgage was thus transferred to Aurora along with the note.

The court noted that the Ibanez holding did not require a reconsideration of the lower court’s judgment. In Ibanez the Massachusetts Supreme Court held that a foreclosure sale made by a party who holds the note but not the mortgage is void as a matter of law. In that case, the note holder provided no evidence of assignment prior to foreclosure. However here, there was a facially valid assignment of the mortgage from MERS to Aurora prior to the foreclosure sale. To the extent the assignment was defective, the court interpreted Ibanez required, at most, that a confirmatory assignment be executed and recorded.

Massachusetts District Court Limits Massachusetts Supreme Court’s Broad Holding From Ibanez By Limiting Challenges to Assignments

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In Aliberti v. GMAC Mortgage, LLC, 779 F.Supp.2d 242 (D.Mass.2011), the plaintiff homeowner relied on the seemingly broad-reaching holding handed down by the Massachusetts Supreme Court in U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011). On facts similar to Ibanez the plaintiff challenged the assignment from MERS to GMAC, thus challenging GMAC’s ability to foreclose.

The Supreme Court in Ibanez stated “any effort to foreclose by a party lacking jurisdiction and authority to carry out a foreclosure under Massachusetts law is void.“ Then adopted case law stating that attempts to foreclose on a mortgage by a party that “had not yet assigned the mortgage results in a structural defect that goes to the very heart of the defendant’s ability to foreclose and renders foreclosure sale void.”

This holding left the question still open as to whether mortgagors have a legally protected interest in assignments to which they are not a party. The district court read the holding from Ibanez as not providing an independent basis for mortgagors to collaterally contest previously executed mortgage assignments to which they are not a party. Further, the holding granted neither an interest nor rights to the third party.

The court noted that in Ibanez, the land court was specifically tasked with evaluating the sufficiency of the assignment process, and the banks, as foreclosing parties and actual parties to the mortgage assignment, had standing to seek court review of the validity of the assignment process.

The Potentially Far Reaching Affects of The Ibanez Holding on Foreclosure Proceedings

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The holding in U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011) potentially may have far reaching affects on foreclosure litigation outcomes across the nation.

Although a state case, Ibanez has national implications for several reasons; the Massachusetts Supreme Court is one of the most respected state supreme courts in the country, a majority of states have laws similar to Massachusetts, and the questions in the case stemming from irregularities in the residential securitized mortgage industry are wide spread.

In Ibanez the Massachusetts Supreme Court was faced with the issue of the validity of foreclosures when the mortgages are part of securitized mortgage lending pools. It is typical practice for mortgages to be bundled and dealt to Wall Street investors. The ownership of mortgage loans are then divided and transferred numerous times with little to no restrictions. However, the mortgage loan transfers’ recordation and documentation often times lag far behind.

The mortgage assignment in the case of Ibanez was executed “in blank” and was not actually recorded until over a year after the foreclosure process had begun. The court’s major problem with the banks was that they did not possess – and could not establish evidence of – a legally effective mortgage assignment showing that they actually held the mortgage. The banks did not posses the mortgage note, thus they lacked standing to sue. Additionally, the banks put the endorsement in blank, without naming the entity to which they were assigning the mortgage. This was a violation of Massachusetts’s law.

Accordingly, the court found that the plaintiff banks – who were not the original mortgagees – failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result their requests for a declaration of clear title were denied.

The court explicitly held that there must be evidence of a valid assignment of the mortgage at the time the foreclosure process commences. However, the court did not specify exactly what type of evidence would suffice to establish what evidence satisfies this requirement.This holding, if applied in its broadest sense, has the potential to ban most securitized mortgages in the country from being foreclosed upon.

Massachusetts Supreme Court Affirms Lower Court’s Judgment in Favor of Plaintiff Who Claimed the Bank Pursuing Foreclosure on His Property, Lacked Legal Standing to Do So

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In U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011), the Massachusetts Supreme Court affirmed a lower court’s ruling in favor of a plaintiff who alleged that the bank pursuing foreclosure on his property had no legal standing to do so.

The Supreme Court held that; the first purchaser failed to show it was the mortgage holder at time of foreclosure, the second purchaser failed to show it was the mortgage holder at time of foreclosure, the holding of note was insufficient to show authority to foreclose, post foreclosure sale assignments were insufficient to show authority, and the ruling did not warrant prospective application.

In reviewing the lower court’s ruling, the Massachusetts Supreme Court found that the lower court judge did not err in concluding that the securitization documents submitted by the plaintiffs failed to demonstrate that they were the holders of the Ibanez and LaRace mortgages, respectively, at the time of the publication of the notices and the sales. The judge, therefore, did not err in rendering judgments against the plaintiffs and in denying the plaintiffs’ motions to vacate the judgments

On appeal, the plaintiff raised three other arguments. First, the plaintiffs initially contended that the assignments in blank, identifying the assignor but not the assignee, not only “evidence and confirm the assignments that occurred by virtue of the securitization agreements,” but “are effective assignments in their own right.” But in their reply briefs they conceded that the assignments in blank did not constitute a lawful assignment of the mortgages.

The court noted that their concession was appropriate, citing the long-standing principle that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; thus the court did not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment.

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Second, the plaintiffs contended that, because they held the mortgage note, they had a sufficient financial interest in the mortgage to allow them to foreclose. However, the court found that under Massachusetts’s law, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage.

Third, the plaintiffs argued that post-sale assignments were sufficient to establish their authority to foreclose when taken in conjunction with the evidence of a presale assignment. However, the court disagreed, finding that where an assignment is confirmatory of an earlier, valid assignment made prior to the publication of notice and execution of the sale, that confirmatory assignment may be executed and recorded after the foreclosure, and doing so will not make the title defective.

Massachusetts’s District Court Finds That Non-Party Mortgagors Lack Standing to Challenge Assignment Between Third Parties

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In Aliberti v. GMAC Mortgage, LLC, 779 F.Supp.2d 242 (D.Mass.2011), the court granted the defendant’s motion to dismiss the plaintiff’s claims. The plaintiff sought to stay GMAC’s foreclosure proceeding by challenging the assignment of the mortgage from MERS to GMAC. Plaintiff filed a three-count compliant that alleged, fraud, violations of Massachusetts’s foreclosure procedural law, and challenged the validity of the assignment.

Plaintiff alleged that the GMAC’s signatory who authorized the assignment was a “well known robo signer” and therefore the plaintiff had reason to believe that the signature on the assignment of the Mortgage was not genuine. The court rejected this argument, noting that an assignment is presumptively valid and the plaintiff failed to plead facts sufficient to challenge its presumptive validity. Further since the assignment satisfied the requirements of Massachusetts law they are deemed valid.

Next the plaintiff alleged that the assignment was invalid because MERS was never actually the mortgagee. Although, the mortgage stated that MERS was the mortgagee it also stated that “MERS is a separate corporation acting solely as a nominee for the lender and lender’s successors and assigns,” plaintiff alleged that MERS could not be both the agent as the nominee and the principal as the mortgagee to the same property right. Plaintiffs further claim GMAC could not demonstrate valid assignment of the promissory note, and that, because it could not establish valid assignment of both the mortgage and the promissory note, it had no right to foreclose on the property.

In addressing whether the assignment was valid, the court sided with the GMAC’s argument that the plaintiffs, as mortgagors, had no standing to challenge the validity of a mortgage assignment between the mortgagee and a third party. The court relied on the holding in Livonia Property Holdings, LLC. V. 12840-12978 Farmington Road Holdings, LLC., 717 F.Supp 2d 727, 735 (E.D. Mich. 2010). On similar facts, the court in Livonia, held that a borrower, as a non-party to the assignment documents it was challenging, lacked standing to challenge them.

Lastly, plaintiffs contented that GMAC’s refusal to negotiate loan modification was in violation of Massachusetts’s law. The court also rejected the contention that GMAC’s failure to negotiate constituted a violation. Under Massachusetts’s case law, absent an explicit provision in the mortgage contract, there is no duty to negotiate for loan modification once a mortgagor defaults.