Author Archives: Joseph Kelly

District Court of Arizona Dismisses Homeowners’ 72-Member Complaint, Finding MERS’ Securitization System Consistent with Theories of Real Property Law

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In In re MERS Litigation, the District Court of Arizona dismissed all seventy-two member cases of a multi-district litigation “Consolidated Amended Complaint” (CAC) brought on behalf of numerous homeowners. Plaintiffs alleged defendants, including MERS, had violated various state statutes including ARS Sec. 33-420, NRS Sec. 107.080, and ORS Sec. 86.735, and committed the tort of wrongful foreclosure, amongst other violations. Eleven defendants filed motions to dismiss, with several additional defendants filing joinders to MERS’ motion.

The crux of plaintiffs’ claims turned on the position that “naming MERS as a beneficiary on the deeds of trusts, and the subsequent operation of the MERS system, splits the MERS deeds of trust from their promissory notes and renders these notes unsecured and unenforceable.” Plaintiffs premised this argument on three basic theories of real property law.

First, to foreclose you need to be a beneficiary.

MERS is not and has never been.

Second, to foreclose the deed of trust must be a valid enforceable security instrument.

The MERS Deeds of Trust are not and never were because they never named a valid beneficiary and were split from the note they were supposed to secure at the time of their creation.

Third, if MERS was actually in possession of some right as an agent under the Deed of Trust, its attempted assignment was ineffective because only the true beneficiary (i.e. principal) can make such an assignment.

The court rejected plaintiffs’ theories and in turn the CAC in its entirety. First, the court rejected the notion that naming MERS as a beneficiary completely destroys the security and bars all attempts at non-judicial foreclosure. Citing the 9th Circuit, the court stated “even granting that MERS is a sham beneficiary and the note is split from the deed [the] conclusion that …no party has the power to foreclose does not hold.”  (emphasis added, internal citations omitted). Second, the court rejected the notion that MERS’ assignments were invalid because they never possessed the promissory notes. Referring to the language in plaintiffs’ Deeds of Trust – the court relied on the provisions granting MERS legal title to the secured interests and the power to assign those interests as dispositive. In turn, the court dismissed all twelve of plaintiffs’ claims for relief. Additionally, though plaintiffs did not explicitly request leave to file an amended complaint, the court found that there would be some level of prejudice to defendants, and that “futility – weighs heavily against granting leave to amend” as “plaintiffs [have already had] several bites at the apple.” Accordingly, the court dismissed with prejudice.

While the court noted the argument was moot for purposes of this decision, it did grant one small victory to plaintiffs in agreeing that the Housing and Economic Recovery Act of 2008 (“HERA”) does not preclude courts from enjoining foreclosures. Defendant Federal Housing Finance Agency (“FHFA”) as Conservator of Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) had intervened in nine separate cases pending in this litigation. In their motion to dismiss, FHFA relied on the language of U.S.C. Sec. 4617(f) that restricts judicial action that would “restrain or affect” the powers of FHFA to argue courts lacked the power to issue injunctions in non-judicial foreclosures. The court disagreed, stating there was no “authority standing for the proposition that the FHFA, or a similarly situated entity, may never be enjoined from bringing a non-judicial foreclosure. If plaintiffs overarching MERS argument was correct, and [Fannie Mae and Freddie Mac had] no enforceable interests in the properties at issue, then FHFA would also lack any enforceable interest.”

District Court of Arizona finds homeowners do not have standing to challenge validity of assignments of deed of trust

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In Campbell v. California Reconveyance Co., CV-11-00180-PHX-DGC, 2012 WL 5299099 (D. Ariz. Oct. 25, 2012), the court denied plaintiffs/homeowners, David & Marie Campbells’ motion for summary judgment, finding they lacked standing.

In July, 2006, plaintiffs received a loan from First Magnus Financial Corp, and signed a promissory note for $417,000 and a deed of trust. The deed of trust was then assigned by MERS to U.S. Bank in 2009. At trial, plaintiffs disputed the legitimacy of this assignment, claiming it was held on behalf of Chase rather than U.S. Bank (who were both defendants to this suit). Plaintiffs did not dispute that defendants’ counsel held the original note at trial.

In 2009, plaintiffs were accepted into a modification plan with Washington Mutual; however, after seven payments the modification was rescinded because their income was too high. Plaintiffs continued to make payments under the terms of the modified plan until August 2010, when Chase (who had since acquired Washington Mutual) returned the payment. In October 2010, California Reconveyance Company (“CRC”) filed a Notice of Trustee’s Sale, which had been postponed pending the outcome of this litigation.

First, plaintiffs sought a declatory judgment vacating the substitution of the trustee, the assignment of the deed of trust, and notice of the trustee’s sale based on alleged fraud or violations of the terms of the trust. Defendants argued plaintiffs lacked standing, citing multiple federal decisions for the proposition that “borrowers do not have standing to challenge assignments of deeds of trust related to their loans” (emphasis added).

The court agreed with defendants, finding plaintiffs were challenging assignments “to which they [were] not parties and in which they did not participate… [they] do not argue that the transactions somehow altered their legal rights or changed their obligations under the note and deed of trust.” The court went on to note that plaintiffs’ concrete and particularized injury claim, namely, that they would be vulnerable to future legal action by the true owner of the note, was insufficient based on both Arizona’s anti-deficiency law, Sec. 33-279(a), and the facts of the particular case. Since plaintiffs did not identify any entity other than the defendants who may have had an interest in the note and deed of trust, the principles of judicial estoppel would preclude defendants from changing their position at a later date. The court concluded that plaintiffs’ argument that the true owner may exist “somewhere” was “nothing more than conjecture” and thus plaintiffs lacked standing to challenge the assignments.

Additionally, the court dismissed plaintiffs’ claim for quiet title as Arizona law prohibits this relief until the mortgage is paid in full. The court also rejected plaintiffs’ claim that Chase breached its duty of good faith and fair dealing related to the renegotiation of the loan, as Chase never entered into a contract with plaintiffs. Similarly, plaintiffs’ request for an accounting on information related to the loan was denied, as plaintiffs did not allege any agency or trust relationship with Chase. Finally, injunctive relief was denied as summary judgment had been granted to defendants on all other claims.

 

9th Circuit Affirms Dismissal of Homeowner’s Challenges to Non-judicial Foreclosure in Arizona

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In Buchna v. Bank of Am., NA, 478 F. App’x 425 (9th Cir. 2012), the court affirmed the District Court of Arizona’s dismissal of plaintiffs/homeowners Mariusz and Julita Buchna’s action against Bank of America, MERS, and Bank of New York Melon Corp. Amongst other allegations challenging the propriety of the foreclosure proceedings, the court found the Buchnas had failed to state a claim on four different grounds.

First, the Buchnas claimed that splitting the note and deed of trust rendered the non-judicial foreclosure provisions in the deed unenforceable. The court found this argument failed to state a claim and noted it was “conclusory speculation” that the parties exercising power under a deed of trust were not the note holders or agents of the holder. Particularly as the plaintiffs did not dispute the default nor the trustee’s right to foreclose.

Second, the court rejected the Buchnas claim that the beneficiary was required to prove ownership of the note before commencing a non-judicial foreclosure for the same reasons.

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Third, and most interestingly, the Buchna’s argued defendants were not permitted to enforce the power of sale provision in the deed because they were not “persons entitled to enforce a negotiable instrument” under Sec. 47-3301 of Arizona’s UCC. The court again found this argument failed to state a claim as Arizona law does not require compliance with the UCC before a trustee commences a non-judicial foreclosure.

Fourth, the court found the Buchna’s argument that MERS was not a valid beneficiary also failed to state a claim.

Finally, the court affirmed the district court on all other grounds, and affirmed the implicit denial for the Buchnas to amend their complaint, as “amendment would have been futile.”

New Jersey Bankruptcy Court Finds that “Non-Holder” Cannot Enforce Mortgage Note

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In In re Kemp, 440 B.R. 624 (Bankr. D.N.J. 2010) the debtor/plaintiff brought an adversary proceeding to expunge a proof of claim filed on behalf of Bank of New York by loan servicer Countrywide Home Loans. At all relevant times, the original note appears to have been either in the possession of Countrywide or Countrywide Servicing. Judge Wizmur found that under New Jersey’s UCC, the fact that the owner of the note (Bank of New York) never had possession of the note was fatal to its claim as it did not qualify as a “holder.” The court also found that upon the purported sale of the note and mortgage to Bank of New York, the note was not properly indorsed to the new owner. Thus, the Bank of New York could not enforce the note, and the court disallowed the bank’s claim. The court also held that the originator of the note, although in possession of the note, could not enforce the note on behalf of the bank because the bank did not have authority to enforce the note.

Florida Court Holds Bank Lacked Authority to Foreclose Absent Substantiation of Note Assignments

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In Gee v. U.S. Bank Nat. Ass’n, 72 So. 3d 211 (Fla. Dist. Ct. App. 2011) the court held that summary judgment against appellant/homeowner was inappropriate because U.S. Bank failed to establish its authority to foreclose. A copy of the mortgage and two assignments, from Advent Mortgage (the original mortgagee) to Option One (first assignee) and from American Home (as successor in interest of Option One) to U.S. Bank, was insufficient to establish bank’s authority to foreclose mortgage, absent any showing how American Home (subsequent assignee) came to be a successor in interest to Option One (first assignee).