In Countrywide Home Loan Servicing, LP v. Rohlf, No. 2009‐AP‐2330, 2010 WL 4630328 (Wis. App. Nov. 17, 2010), the court distinguished the decision of Landmark v. Kesler and held that the note and the mortgage are both transferred when assignment is made. The homeowners appealed from judgments of foreclosure on their homestead in Winnebago County and property they owned in Green Lake County. They argued that Countrywide Home Loans Servicing LP did not establish that it was the holder of the note and mortgage on the Oshkosh home. The court found that because the mortgage designates MERS as the mortgagee and nominee of American Sterling Bank, the lender, MERS was allowed to act as American Sterling Bank and assign the mortgage to Countrywide. In addition, the court held that the note and mortgage are to be construed together even if the note and mortgage are sold one or more times because the assignment of mortgage transfers both the note and mortgage. Since the homeowners presented no evidence to refute the assignment of both the note and mortgage to Countrywide and also failed to establish that MERS designation as nominee for American Sterling Bank did not include authority to assign the note, the court found that Countrywide had standing to foreclose.
Author Archives: Gloria Liu
Texas Court of Appeals Holds that Foreclosure Proceedings Do Not Require Production of the Original Note
In Hornbuckle v Countrywide Home Loans, Inc., No. 02-09-00330-CV (TX Ct. App. 2, May. 19, 2011), the court affirmed a lower court decision allowing judicial foreclosure. The homeowners purchased home by obtaining an FHA loan from Principal Residential Mortgage, Inc. (PRMI). The homeowners signed a note and deed of trust both dated March 1, 2002. The lender was identified in both documents as PRMI, but the beneficiary in the deed of trust is Mortgage Electronic Registration Systems, Inc. (MERS) as the nominee for PRMI. In late 2003 or early 2004, servicing of the loan was transferred to Countrywide. Nothing in the record shows that the Hornbuckles were informed that PRMI sold the note and deed of trust to Massachusetts Mutual. But a letter to the Hornbuckles from Countrywide shows that the Hornbuckles knew PRMI had transferred servicing of the loan as of at least February 10, 2004 and that they knew Countrywide was the new servicer as of at least March 29, 2004. The homeowners filed a petition for bankruptcy on May 1, 2006 but the petition dismissed on October 11, 2007 without discharging any debts that were outstanding at that time. The court found that initiating foreclosure proceedings did not require production of the original note. A copy of the note containing an endorsement to Countrywide as payee as well as the assignment of the note and deed of trust to Countrywide for the benefit of Massachusetts Mutual, with recording information attached, was sufficient.
Arizona Bankruptcy Court Imposes Duty on Attorney to Act with Reasonable Diligence
In In re: Madison, No. 2:09-bk-22225-SSC (Bankr. D. Ariz., March 30, 2011), the court held that an attorney has the duty to act with reasonable diligence in representing his client and communicating adequately with both the client and the court. The attorney here did not inform the court of his intentions to withdraw, instead he simply failed to perform the duties of representing his client. Nor did his client know of her own hearings and the status of her case. He did not withdraw appropriately from representation, and failed to act diligently and communicate adequately. The court concluded that he violated several ethical rules, and referred the matter to the Arizona state bar for further action.
U.S. 9th Circuit Court of Appeals Holds that Lenders Still Entitled to Repayment of Loans Even If MERS is Not a Beneficiary
In Cervantes v. Countrywide Home Loans, Inc., No. 09–17364 (U.S. 9th Cir. 2011), there was a putative class action challenging origination and foreclosure procedures for home loans maintained within the Mortgage Electronic Registration System (MERS). In their complaint, the plaintiffs allege conspiracies by their lenders and others to use MERS to commit fraud. They also contend that all transfers of the interests in the home loans within the MERS system are invalid because the designation of MERS as a beneficiary is a sham and the system splits the deed from the note, and, thus, no party is in a position to foreclose. The court reasoned found that MERS did not initiate foreclosure: the trustees initiated foreclosure in the name of the lenders. Even if MERS were a sham beneficiary, the lenders would still be entitled to repayment of the loans and would be the proper parties to initiate foreclosure after the plaintiffs defaulted on their loans. The plaintiffs’ allegations do not call into question whether the trustees were agents of the lenders. Although it is unclear from the pleadings who the current lender is on plaintiff Cervantes’s loan, the allegations do not raise any inference that the trustee Recontrust Company lacks the authority to act on behalf of the lender. Further, the notes and deeds are not irreparably split: the split only renders the mortgage unenforceable if MERS or the trustee, as nominal holders of the deeds, are not agents of the lenders.
California Court of Appeals Holds that MERS and its Assignee have Standing to Foreclosure Without Holding Original Promissory Note
In Ferguson v Avelo Mortgage, LLC.,195 CA 4th 1618 (2011), the court held that MERS and its valid assignee, Avelo, had authority to initiate foreclosure proceedings and invoke the tender rule against Tenants, even when neither held the original promissory note. The owner had purchased home with New Century Mortgage Company as lender, Mortgage Electronic Registration Systems (MERS) as lender’s nominee and beneficiary under the deed of trust, and First American Title as trustee. Avelo Mortgage executed a substitution of trustee, replacing First American with Quality Loan Service Corporation. MERS then assigned its interest under the deed of trust to Avelo. The substitution of trustee (from First American to Quality) was recorded in 2007; on that same day, the notice of sale was recorded. Avelo purchased Home in a nonjudicial foreclosure sale in 2008. Court reasoned that the deed of trust specifically allowed MERS to initiate foreclosure proceedings. Under federal case law, it is not necessary that MERS or Avelo, as its assignee, have possession of the original promissory note as a precondition to a nonjudicial foreclosure under the deed of trust. The court characterized the argument that MERS or Avelo must have possession of the promissory note as a “legal loophole.”
Alabama Circuit Court Holds that MERS has Standing to Foreclose if it is a Nominee of the Lender
In Henderson v. Merscorp Inc., No. 08-CV-900805 (Ala. Cir.Ct. May 6, 2010), the Alabama Circuit Court dismissed an action claiming that MERS lacked standing to foreclose. The borrower sued MERS after MERS initiated foreclosure proceedings after a default, and alleged that MERS lacked standing to foreclose. The borrower made claims for wrongful foreclosure, negligence, wantonness, and unjust enrichment. MERS moved for summary judgment, arguing that it had standing to foreclose because MERS is the mortgagee as nominee for the Lender and MERS holds the legal title to the note and mortgage. MERS’ attorney held physical possession of the note for MERS, and the note endorsed in blank. MERS also moved to dismiss plaintiff’s claims for negligence, wantonness, and unjust enrichment because MERS was not the servicer of the loan and was not responsible for collection, distribution, or application of plaintiff’s mortgage payments. Additionally, MERS argued that plaintiff’s wrongful foreclosure claim should be dismissed because no foreclosure sale had occurred or was scheduled, even though plaintiff had defaulted. The trial court granted MERS’ motion for summary judgment and dismissed the case. On plaintiff’s appeal, the Alabama Supreme Court affirmed the trial court without opinion. The Circuit Court also affirmed without opinion.
Ohio Bankruptcy Court Holds that Incomprehensible Payment Histories Evidence Defective Procedures
In In re Cartier, No. 04-15754 (Bankr. N.D. Oh. June 18, 2008),the Bankruptcy court found that the payment history was incomprehensible and that procedures were not followed. There was an order on MERS, through an officer, to appear and show cause, and the show cause related to a defective motion for relief from stay that was filed. The investigation revealed that MERS regulations and procedures had not been followed, and as a consequence, the dots could not be connected to make MERS the noteholder in these cases. In this case it was clear that MERS was not the noteholder.
