Author Archives: Joseph Kelly

Eastern District of North Carolina Requires Homeowners to Allege Ability to Fully Tender Outstanding Balance of Loan to State a Claim for Rescission Under TILA, Dismisses All Other Claims

Posted on by

In Ward v. Sec. Atl. Mortg. Elec. Registration Sys., Inc., 858 F. Supp. 2d 561 (E.D.N.C. 2012), appeal dismissed (May 30, 2012) the Eastern District of North Carolina granted defendants’ motion to dismiss claims brought against them by borrowers for violations of the Truth In Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).

Plaintiffs executed a note with Security Atlantic Mortgage (“SAM”) in 2007, in 2010 they instituted this suit claiming SAM, MERS, and BAC Home Loans Servicing, LP (“BAC”) had violated TILA, the Home Ownership and Equity Protection Act (“HOEPA”), RESPA, the Fair Credit Reporting Act (“FCRA”), the Equal Credit Opportunity Act (“ECOA”), and the Federal Trade Commission Act (“FTCA”). In the court’s first order, they granted defendants’ motion to dismiss, finding almost all of plaintiffs’ claims were deficient, but they gave plaintiffs 21 days to correct the pleadings and correct their failure to make service on SAM. Plaintiffs’ amended complaint did not address the service issue, accordingly claims against SAM were dismissed without prejudice. BAC and MERS filed a motion to dismiss the amended complaint.

  1. TILA claims

Plaintiffs claimed a number of disclosure violations under TILA, and contended that MERS did not have standing as nominee nor have legal authority to transfer the note.

The court started its discussion by noting that TILA only applies to creditors and assignees, and provides that a servicer is not to be treated as an assignee “unless the servicer is or was the owner of the obligation.” 15 USC 1641(f)(1) Here, however, the plaintiffs expressly identified BAC as the lender in their Notice of Right to Cancel, and amended complaint. The court found plaintiffs’ allegations were sufficient to raise a plausible inference BAC presently owns the note and qualifies as an “assignee” under TILA.

While plaintiffs made no allegations that MERS is or was an assignee of the loan, the court denied MERS’ motion to dismiss with respect to rescission claims because without MERS it might not be possible for the court to afford complete relief to plaintiffs.

Disclosure

The court dismissed plaintiffs’ causes of action relating to TILA mandated disclosures, as they failed to allege sufficient facts to state a claim. Additionally, the court noted, the one year statute of limitations would have barred plaintiffs’ claims even if they had pled sufficient facts.

Rescission

The court acknowledged plaintiffs’ right to rescind had not expired since the original creditor had never given them the requisite copies of notice. However, using its equitable powers, the court required plaintiffs to allege an ability to fully tender the amount owed on the loan. Without such an allegation, the amended complaint would fail to state a claim for rescission under TILA.

  1. RESPA claims

Plaintiffs also claimed BAC violated RESPA by failing to:

  1. Provide notice of the loan assignment to BAC for servicing 15 days before assignment and
  2. Respond to written inquiry for an accounting of all payments

For the first claim, the court dismissed because the true claim was against the unnamed party who assigned the loan to BAC.

For the second claim, the court noted plaintiffs made a request they purported to be a Qualified Written Request (“QWR”), but the court found that it was actually a communication “challenging the validity of the loan, not a communication relating to the servicing of the loan as defined by statute.” Thus, the writing did not qualify as a QWR and BAC’s failure to respond did not subject BAC to RESPA liability. The court went on to note that plaintiffs also failed to state a claim under 12 USC 2605(e)- because they failed to allege any pecuniary loss attributable to the RESPA violation.

Since plaintiffs made no factual allegations relating to FCRA, ECOA, or FTCA, or for punitive damages relating to “harassment, emotional distress and displacement,” the court dismissed these claims with prejudice.

Accordingly, all of plaintiffs’ claims were dismissed with prejudice except their claim for rescission under TILA, which was dismissed with leave to amend within 14 days and required an allegation proving their ability to tender the loan proceeds.

North Carolina Appellate Court Finds for Home Owners, Concluding Bank Did Not Produce Sufficient Evidence of Assignment

Posted on by

In In re Adams, 204 N.C. App. 318, 693 S.E.2d 705 (2010) the Court of Appeals of North Carolina overturned the Superior Court and held that the alleged holder (Nationwide), while not required to present the original note and deed, was required to prove that the original note holder had transferred or assigned its interest in the note. Accordingly, it reversed the order authorizing the substituted trustees to foreclose.

Hannia Adams had executed a note with Novastar Mortgage, Inc. (“Novastar”) as the lender. To secure this loan, she and Clayton Adams executed a deed of trust which identified Novastar as the lender and Burke & Associates as the trustee. Roughly four years later Monica Walker, Matressa Morris and Nationwide sought to be appointed as substituted trustees for Burke & Associates. Their appointment identified Deutsche Bank for Soundview (“Deutsche Bank”) as the current owner and holder of the note. One week after the appointment, at the “instruction of the owner and holder of the note,” Monica Walker filed a petition with the county clerk requesting a hearing to permit respondents to show cause as to why the court should not allow a foreclosure sale to proceed.

The Clerk of Wake County Superior Court found Deutsche Bank was the holder of the note, the note was in default, and the instrument securing the debt gave the note holder the right to foreclose through power of sale. On appeal, the Superior Court affirmed based on testimony from Nationwide’s team lead in the foreclosure department and an affidavit from an assistant secretary at Deutsche Bank, and respondents appealed again.

The Court of Appeals held that under North Carolina law, the lender must prove four elements to establish their right to foreclose:

  • 1. [A] valid debt of which the party seeking to foreclose is the holder
  • 2. Default
  • 3. Right to foreclose under the instrument
  • 4. Notice to those entitled to such

NC Gen Stat. Sec. 45-21.16(d)

The court further broke down part one to its constituent parts:

  • 1. Is there sufficient competent evidence of a valid debt?
  • 2. Is there sufficient competent evidence that the party seeking to foreclose is the holder of the notes that evidence the debt? (internal citations omitted)

Here the only issue was whether Deutsche Bank presented competent evidence that it was the current holder of the note.

Respondents argued Deutsche Bank’s evidence was insufficient as it was only photocopies of the note and deed of trust. However, the court cited another appellate decision for the principle that “the best evidence rule was inapplicable…when the opposing party admits that the documents shown [to them] are correct copies.” Since respondents did not dispute that the copies were correct, the court concluded the bank was not required to produce the originals.

However, the court went on to state “mere possession of a note by a party to whom the note has neither been indorsed nor made payable does not suffice to prove ownership of holder status.” (internal citations omitted, emphasis in original) Here, since the photocopies indicated the original holder was Novastar, not Deustche Bank, and the photocopies did not indicate Novastar negotiated, indorsed or transferred the note to Deustche Bank, respondents claimed they were insufficient to establish Deutsche Bank was the current holder of the note.

The court rebutted that it is settled procedure that affidavits can be used as competent evidence to establish statutory elements in de novo foreclosure appeals. Here, the testimony through affidavit from the assistant secretary of Deutsche Bank and the in-person testimony from Ms. Cole indicated Deutsche Bank was the current holder of the note and deed of trust. One gap remained however. As the court stated “however, neither the in-person testimony…nor the testimony by affidavit…expressly showed that Novastar transferred or assigned its interest in the note or deed of trust to Deutsche Bank.” Since neither the photocopies nor the testimony explained how the note and deed of trust were assigned, the court found the evidence presented was not sufficient to establish that the note was payable to Deutsche Bank and reversed accordingly.

District Court of North Dakota Finds MERS has Standing to Foreclose, Rejects All Twelve of Plaintiff’s Challenges

Posted on by

In Bray v. Bank of Am., 1:09-CV-075, 2011 WL 30307 (D.N.D. Jan. 5, 2011) appeal dismissed, 435 F. App’x 571 (8th Cir. 2011), the court denied plaintiff’s ten motions, including his motion for summary judgment, and granted defendants’, Bank of America and Countrywide Home Loans, motion for summary judgment.

Plaintiff, Thomas Bray, received a loan from America’s Home Loans (“AHL”), and the corresponding mortgage listed MERS as the mortgagee. The proceeds of the loan were distributed to Security State Bank, a third party individual, and plaintiff Bray, who conceded that he used the funds to pay for his living expenses. Bank of America’s witness testified that the note was then transferred from AHL to Decision One Mortgage, Decision One then transferred its interest to Bank of America, roughly one month later Bank of America transferred its ownership interest to Bank of New York Melon, but remained the servicer of the note and the mortgage. MERS’ witness corroborated that their records showed that Bank of New York Mellon was the current beneficial owner of the note.

Plaintiff challenged the current foreclosure action under twelve different theories, including disputing the ownership of the note and mortgage, violations of the FDCPA, TILA, and claiming allodial title.

First, the court found that under the North Dakota Century Code, MERS had standing to foreclose as it owned both the note and the mortgage. The ensuing assignments did not change the fact that MERS was both the mortgagee and nominee for the original lender and its successors and assignees.

The court also rejected plaintiff’s Fair Debt Collection Practices Act claim, finding that both Bank of America and MERS were not subject to the FDCPA as their activities did not constitute “debt collection” as defined in the statute. Additionally, AHL was explicitly excluded from the FDCPA as they were the original creditor. 15 U.S.C. §1629a(6)(F)(ii).

Plaintiff’s Truth In Lending Act (TILA) claim, that he had exercised his right to rescission under 12 C.F.R. §226.15, was also dismissed. The court found as a matter of law plaintiff had missed the three-day period to exercise his right of rescission by approximately three years.

In addition, the court rejected plaintiff’s claim that defendants had not produced the “wet ink” originals of the note and mortgage as they had been presented to him at a previous deposition.

They also found his claim that the transaction lacked consideration since the Federal Reserve Notes received were not backed by any hard asset “patently frivolous.” In addition the court rejected his claims that Bank of America acted ultra vires, that the defendants had violated the RICO Act as the loan was not connected to any gambling activities, and that the interest rates were usurious. Finally, the court rejected plaintiff’s claims of fraud, acquiescence by the defendants, violations of the Real Estate Settlement Procedures Act, and plaintiff’s claim to allodial title, which the court described as a “concept which has no place in modern American law.”

Appellate Division of New Jersey Finds Deutsche Bank Did Not Have Standing to Foreclose Under NJSA 12A:3-301

Posted on by

In Deutsche Bank Nat. Trust Co. v. Mitchell, 422 N.J. Super. 214, 27 A.3d 1229 (App. Div. 2011) the Appellate Division of New Jersey reversed the trial court’s grant of summary judgment to plaintiff/Deutsche Bank. In doing so, the court found that Deutsche Bank did not prove it had standing at the time it filed the original complaint and its post-complaint amendment was insufficient to cure the default. Thus, Deutsche Bank lacked standing to foreclose.

The facts of this case are somewhat complex as the defendant/tenant, Ms. Jacqueline Bethea, was also a victim of a buy-lease-back “mortgage rescue scam.” After her mother passed away and her medical conditions worsened, Ms. Bethea had filed bankruptcy. However, while her petition was pending, she met Steve French, CEO of Elite Financial Services, who convinced her to dismiss the petition as he would help her save her home, pay off her debts, and improve her credit score. The plan was termed a buyout of the property, and included a straw-man, Mr. Mitchell, who would be awarded a $10,000 consulting fee for making the purchase. Additionally, the agreement provided for a $25,000 consulting fee to Elite for arranging the transaction. After two years renting, Ms. Bethea would be able to repurchase her home. However, the terms of the agreement proved unsustainable, as the payments Ms. Bethea was expected to make were higher than her original mortgage payments. In addition, while paying property taxes, utility bills and municipal charges as a tenant, Ms. Bethea’s proceeds from the original sale had been escrowed and drained through the course of the two year plan. Approximately 7 months later, Deutsche Bank filed a complaint for foreclosure against Mr. Mitchell and Ms. Bethea, who was included due to the $35,000 mortgage she had given to Mr. Mitchell in connection with the sale of the property originally. The day after the complaint was filed, Washington Mutual, as successor in interest to Long Beach Mortgage Company (the original mortgagee), assigned the mortgage to Deutsche Bank.

Ms. Bethea filed a number of affirmative defenses, including violations of the Truth In Lending Act (TILA), Home Ownership Equity Protection Act, Real Estate Settlement Procedures Act, and New Jersey Home Ownership Security Act, and a third-party complaint alleging violations of the Consumer Fraud Act, amongst other violations against Deutsche Bank, Mr. Mitchell, Mr. French and Elite. The trial court granted summary judgment to Deutsche Bank finding “the fact that the HUD-1 prepared by the third-party defendants is a lie does not put the lender on notice that the seller wasn’t going to be getting everything that she thought she was going to be getting out of the proceeds of the sale.” Additionally, the court found Deutsche Bank’s amended complaint cured its original defect of not possessing the mortgage on the date of filing.

The Appellate Division reversed, finding Deutsche Bank did not have standing at the time it filed its complaint as it did not possess the note. Under NJSA 12A:3-301, there are three categories of persons entitled to enforce negotiable instruments. The court explored each category and in turn rejected each one from application in this case.

First, Deutsche Bank argued they were entitled to foreclose as a party may enforce the instrument even if they are not in possession of the note. However, the court rejected this argument as it applies to only two specific categories. Under 12A:3-309, one may fit under this prong if the instrument has been lost, destroyed or stolen. Second, 12A:3-418 applies when an instrument has been paid or accepted by mistake. The court found neither scenario applicable to Deutsche Bank.

Second, the court found Deutsche Bank did not qualify as a “holder” of the instrument as the copy of the note it possessed was not “indorsed” within the meaning of NJSA 12A:3-204.

Third, the court found Deutsche Bank did not qualify as a “nonholder in possession of the instrument who has the rights of a holder” because it did not demonstrate it possessed the note at the time of filing.

Accordingly, the court reversed the order of summary judgment and remanded to determine whether, before the original complaint was filed, plaintiff was in possession of the note or had another basis to achieve standing.

The court also made one final interesting point related to plaintiff’s proof, finding the attorney’s certification based on the business records of Deutsche Bank insufficient. The court noted, “Attorneys in particular should not certify to facts within the primary knowledge of their clients.” (internal citations omitted).

New Jersey Superior Court Dismisses Foreclosure Suit, Requiring Physical Possession of Note & Mortgage at Time of Filing

Posted on by

In Bank of New York v. Raftogianis, 418 N.J. Super. 323, 13 A.3d 435 (Ch. Div. 2010) the Superior Court of New Jersey, Chancery Division, Atlantic County, found that although the lender had not separated the note and mortgage through the securitization process, there was insufficient evidence that the trustee had physical possession of the original note as of the date the foreclosure was filed.

Defendant, Michael Raftogianis, executed a note in the amount $1,380,000 to American Home Mortgage Acceptance, Inc. (“AHA”) and corresponding mortgage in September 2004. The mortgage described MERS as the mortgagee, as nominee for the Lender. In December 2004, defendant’s mortgage was securitized along with a group of other mortgages held by AHA to American Home Mortgage Securities, LLC. Afterwards, defendant’s mortgage was resold to plaintiff’s trust. Defendant defaulted in October 2008. Bank of New York was prosecuting this foreclosure case as indentured trustee for the trust.

After a lengthy discussion of the UCC, MERS recording system, and securitization in general, the court concluded “[w]hile it was clear the note had been indorsed prior to the time it was presented to the court, presumably as a part of the securitization process, it was not clear just when that occurred, or when the note had been physically transferred from American Home Acceptance to some other individual or entity.”

In turn, the court addressed the three central issues necessary to resolution.

First, the court rejected defendant’s “separation theory.” Splitting the note and the mortgage, in the sense the note was payable to the lender, and the mortgage was directed to MERS as nominee for the lender does not restrict the ability to foreclose. Interestingly, the court seemed to focus in part on the lender’s intent, stating “[i]t is clear, however, that there was no real intent to separate ownership of the note and mortgage at the time those documents were created.”

Second, the court rejected plaintiff’s argument that it did not have to establish it had possession of the note at the time of filing as it was a “real party in interest” under New Jersey Rule 4:26-1. The court focused on the permissive nature of this statute and the uncertainty that the trust had possession of the note (which would be required under the UCC) to reject this position.

Third, the court addressed plaintiff’s claim that possession of the note after the complaint was filed was sufficient to overcome any initial deficiencies. Citing to the Southern District of Ohio, the court stated to satisfy Article III’s standing requirements, “the plaintiff in a foreclosure action must establish that it was the holder of the note and the mortgage at the time the complaint was filed.”

Here, the bank’s witness was unable to offer any direct proof as to the physical transfer of the note at issue. Accordingly, the court found “[p]laintiff failed, even by the preponderance of the evidence standard, [to establish] that it did have possession of the note as of the date the complaint was filed” and dismissed without prejudice.

New Jersey Appellate Division Affirms Aurora Loan Servicing’s Foreclosure Judgment, Rejecting Homeowners’ “Exceptional Circumstances” Argument

Posted on by

In Aurora Loan Services, LLC v. Pagano, A-3887-10T1, 2011 WL 6153634 (N.J. Super. Ct. App. Div. Dec. 13, 2011) the Appellate Division of the Superior Court of New Jersey, Atlantic County, affirmed the denial of defendant/homeowners’ motion to vacate their default judgment of foreclosure.

Michael and Janet Pagano had first executed their note and mortgage in July 2007. After defaulting in June 2008, Aurora Loan Servicing commenced a foreclosure action in September 2008, stating the note and mortgage had been assigned to them by MERS, as nominee for AHM Mortgage. Michael Pagano then filed a voluntary Chapter 7 bankruptcy. However, Aurora received an order lifting the bankruptcy’s automatic stay, and a final judgment of foreclosure by default was entered in August 2009. After one pro se motion to vacate and a failed attempt at mediation, the Paganos sought to reargue under R. 4:50-1(f) and the “new law” made in Bank of New York v. Raftogianis, standing for the proposition that “foreclosing plaintiff[s] must have had ownership or control of the underlying debt as of the date of filing of the complaint.”

However, the trial judge found defendants’ motion time-barred and without justification for delay under R. 4:50-l(f). Further, the judge disagreed with defendants’ characterization of the earlier decisions as a “change in law” and concluded the foreclosure was “entirely appropriate.” On appeal, defendants argued exceptional circumstances were present to justify vacating the foreclosure, relying on the general recognition by the judiciary of controlling the integrity of the foreclosure process. However, because these matters were not presented to the trial judge, the court found they were precluded from addressing them. Further, the Appellate Division affirmed the trial judge’s reliance on the bankruptcy records, and found the foreclosure process “consistent with the interests of the holder of the debt” and that defendants were time-barred. Finally, the court addressed defendants’ exceptional circumstances argument and found that “new developments in case law generally do not qualify as such an extraordinary circumstance as to justify relief from a final judgment.” (internal citations omitted). Because there were no exceptional circumstances that would result in a grave injustice here, the Appellate Division affirmed the trial court in its entirety.

New Jersey Appellate Division Finds Bank of New York Does Not Have Standing to Prosecute Foreclosure Action

Posted on by
quick cash loans $10000

In Bank of New York As Tr. For Certificate Holders CWABS, Inc. v. Cupo, A-1212-10T2, 2012 WL 611849 (N.J. Super. Ct. App. Div. Feb. 28, 2012) the Appellate Division of the Superior Court of New Jersey ruled in favor of homeowner Alexander Cupo’s motion challenging the propriety of Bank of New York’s foreclosure. In reversing the trial court, the Appellate Division cited Deutsche Bank Nat’l Trust Co. v. Mitchell for the prevailing standard in New Jersey that “a foreclosing mortgagee must demonstrate that it had the legal authority to enforce the promissory note at the time it filed the original complaint for foreclosure.” Here, because MERS, as nominee for the original lender (Countrywide) had assigned the promissory note and mortgage to plaintiff (Bank of New York) thirty-nine days after the complaint was filed, the court found Bank of New York did not have standing as an assignee to prosecute this foreclosure action. However, the court also remanded for purposes of determining whether there was an alternative basis to achieve standing pursuant to N.J.S.A. 12A:3-301.