Author Archives: Justin Rothman

Washington State Court Holds that Defendants Could Not Challenge Chase’s Authority to Foreclose During an Unlawful Detainer Action

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In JPMorgan Chase Bank, N.A. v. Pace, 163 Wash.App 1017 (2011), the Court of Appeals of Washington affirmed a lower court’s ruling granting Plaintiff summary judgment.

In the case at hand, Defendants owned real property in Washington. In February 2005, they executed a note and deed of trust in favor of Long Beach Mortgage Company. Through a series of transactions, the plaintiff, JPMorgan Chase Bank N.A. (Chase), became the holder of the defendants’ note. The defendants stopped paying their mortgage in October 2008. Chase issued a notice of default in March 2009 and notices of foreclosure and trustee’s sale in April 2009. The notices warned that the property would be sold at auction on July 24, 2009 unless the defendants sought to restrain the sale under Washington law. As required by law, Chase also advised that “failure to bring such a lawsuit may result in a waiver of any proper grounds for invalidating the Trustee’s sale.” The defendants did not contest the default or attempt to restrain the trustee’s sale. Chase acquired the deed at the sale, and on August 24, 2009, Chase recorded the deed and issued a notice to vacate. When the defendants refused, Chase commenced and unlawful detainer action.

The defendants argued that Chase lacked standing to bring the unlawful detainer action because Chase had no authority to foreclose on the note. The court, however, rejected this argument and stated that the defendants could not litigate Chase’s authority to foreclose during an unlawful detainer action. Rather, an unlawful detainer action under Washington law “is a summary proceeding for obtaining possession of real property. The court’s jurisdiction is limited to determining which party is entitled to possession and ancillary issues such as damages and rent due.” The court went on to say that if the defendants believed Chase lacked authority to foreclose, Washington law required them to raise the issue before the trustee’s sale. The court concluded that, by their silence, the defendants waived any objection to the foreclosure proceedings, and unlawful detainer actions “do not provide a forum for litigating claims to title.” Thus, the court affirmed the grant of Chase’s summary judgment.

Minnesota District Court Denies Plaintiffs’ Quiet Title Claim Because of Default; Plaintiffs Fail to Sufficiently Allege Slander of Title Claim

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In Novak v. JP Morgan Chase Bank, CIV. 12-589 DSD/LIB, 2012 WL 3638513 (D. Minn. Aug. 23, 2012), the United States District Court of Minnesota granted the defendants’ motion to dismiss the plaintiffs’ claims.

In the case at hand, each plaintiff executed a promissory note and mortgage of real property in Minnesota. Thereafter, each plaintiff defaulted. Each defendant either initiated foreclosure-by-advertisement proceedings against a particular plaintiff or threatened such proceedings in accordance with the respective mortgages. Every mortgage in this case states that the lender or its successors or assignees “may require immediate payment in full of all sums secured by the mortgage and may invoke the power of sale” when a mortgagor defaults under the mortgage. The mortgages are in various stages of default, ranging from potential foreclosure to completed sheriff’s sale. Plaintiffs’ sought to quiet title and also claimed slander of title. The court dismissed each of these claims in turn.

First the court denied the plaintiffs’ quiet title claim. The court reasoned, “actions to quiet title and determine adverse claims are equitable actions,” and a “plaintiff who seeks equity must come into court with clean hands.” The court found that plaintiffs in the present action came to the court with “unclean hands” because they had each defaulted on their respective mortgage loans by failing to make promised payments. The plaintiffs wanted to make their respective mortgages invalid after defaulting. The court concluded that the plaintiffs in this case sought equitable relief “from an outcome of their own creation.”

The court then considered the plaintiffs’ slander of title claim. To state a claim of slander of title, a plaintiff must allege facts that show: (1) That there was a false statement concerning the real property owned by the plaintiff; (2) that the false statement was published to others; (3) that the false statement was published maliciously; and (4) that the publication of the false statement concerning title to the property caused the plaintiff pecuniary loss in the form of special damages. The court stated that the plaintiffs failed to “allege facts from which the court could infer that defendants made a false statement, that defendants acted with malice or that plaintiffs suffered any pecuniary damages from the publication of amounts due on their mortgages.” Thus, the claim was dismissed.

Utah State Court Holds that MERS Maintains Its Rights Under the Deed of Trust Despite the Sale and Securitization of the Underlying Note

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In Commonwealth Property Advocates v. Mortgage Electronic Registration System, 263 P.3d 397, (2011), the Court of Appeals of Utah affirmed a Utah district court’s order dismissing the plaintiff’s complaint. In the case at hand, a home buyer executed a promissory note in favor of her lending bank for $417,000. The note was secured under the terms of a deed of trust describing property in Utah as collateral for the debt. The deed of trust identified MERS as the “nominee for Lender and Lender’s successors and assigns” and as the “beneficiary under this Security Instrument.” Moreover, MERS had the right “to exercise any or all of Lender’s interests, including but not limited to, the right to foreclose and sell the Property, and to take any action required of Lender including, but not limited to, releasing and canceling the Security Instrument.” The lender assigned its servicing rights to Citi. It was alleged that the lender promptly sold the debt represented by the note to Fannie Mae, which led to the securitization of the home buyer’s debt. On December 6, 2009, MERS assigned its “beneficial interest” to Citi. The home buyer defaulted on the note, and on approximately December 8, 2009, the successor trustee to the deed of trust recorded a notice of default and election to sell. On December 31, 2009, a quitclaim deed was recorded by which the home buyer transferred her interest in the Utah property to Commonwealth Property Advocates (CPA).

The plaintiff argues that securitization of the note “nullified MERS’s and Citi’s rights under the terms of the Deed of Trust.” The plaintiff goes on to say that Utah Code § 57-1-35 provides that the deed of trust, and all of the rights associated with it, were transferred with the note to the investors when the note was securitized, “thereby stripping MERS and Citi of any rights carved out in the terms of the deed of trust.”

The court, however, disagreed with the plaintiff’s argument and interpretation of Utah Code § 57-1-35. The court reasoned that the “plain language of this statute simply describes the long-applied principle in [this] jurisdiction that when a debt is transferred, the underlying security continues to secure the debt.” The court further interpreted Utah Code § 57-1-35 as ensuring the basic presumption that “a transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise.” Moreover, the “plain language of the statute does nothing to prevent MERS from acting as nominee for Lender and Lender’s successors and assigns when it is permitted by the Deed of Trust.” The deed of trust explicitly gave MERS the right to foreclose on behalf of “Lender and Lender’s successors and assigns.” The statute does not prohibit parties from contracting for these arrangements, and nowhere in the documents themselves is MERS explicitly prohibited from then assigning its beneficial interests under the note to Citi. Thus, MERS and Citi maintained their rights as provided under the deed of trust despite the securitization process.

Utah District Court Holds that MERS Has Authority to Assign Beneficial Interest and that Assignee Has Power to Initiate Non-Judicial Foreclosure

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In King v. American Mortgage Network, No. 1:09 CV 125 TS, 2010 WL 3222419 (D. Utah Aug. 16, 2010), the United States District Court of Utah granted Defendant’s motion to dismiss Plaintiff’s claims. In November 2007, Plaintiff received a loan for $112,000 from American Mortgage Network, Inc. (“AmNet”) to purchase property in Ogden, Utah. In connection with the loan, the plaintiff signed a promissory note. Plaintiff’s loan with AmNet was secured by a deed of trust. MERS was designated as the beneficiary of the deed of trust and nominee for AmNet and its assigns. The deed of trust stated that MERS had the right “to exercise any or all of Lender’s interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and cancelling this Security Instrument.” In February 2008, AmNet sold the loan to Fannie Mae. On July 7, 2009, MERS assigned its beneficial interest under the deed of trust to Chase. Plaintiff defaulted under terms of the loan, and Chase caused the property to be foreclosed.

The plaintiff first alleged that Defendant Chase violated the Real Estate Settlement and Procedures Act (“RESPA”) by failing to respond to a qualified written request, namely letters sent from Plaintiff’s former counsel. The court, however, held that it did not have to determine the validity of the RESPA claim because the plaintiff did not allege any actual damages resulting from the failure to respond or delay in responding to the qualified written request, which is a requirement of RESPA.

Plaintiff also brought forth a quiet title claim “based on the allegation that the Note and Trust Deed have been split.” The court rejected this claim as well due to the fact that the plaintiff provided no evidence showing that the note and deed of trust were split.

Finally, the plaintiff argued that Chase “did not have the authority to foreclose the Trust Deed on the Property.” The court rejected this claim and found that MERS had “authority to initiate foreclosure proceedings, appoint a trustee, and foreclose and sell the property.” In the case at hand, MERS assigned its beneficial interest under the deed of trust to Chase. Thus, Chase had authority to foreclose.

Tenth Circuit Holds that MERS Has Authority to Assign Trustees After the Promissory Note Has Been Securitized and that Those Assignees Can Initiate Non-Judicial Foreclosure; Plaintiffs’ TILA Claims Were Time Barred

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In Tadehara v. Ace Securities Corp. Home Equity Loan Trust Series 2007 HE4, 2012 WL 2581037, the United States Court of Appeals for the Tenth Circuit dismissed the plaintiffs’ quiet title claim and TILA claim. On February 8, 2007, the plaintiffs obtained a loan secured by a mortgage on their house in Murray, Utah. They gave a promissory note secured by a deed of trust to DB Home Lending. MERS was designated as the beneficiary of the deed of trust and as nominee for the lender and the lender’s assigns as well as “the successors and assigns of MERS.” The deed of trust gave MERS authority to foreclose and sell the property. MERS subsequently assigned the deed of trust on two separate occasions in 2009. The promissory note itself was sold by the lender and securitized in 2007. On August 27, 2009, the plaintiffs sent a notice of rescission claiming that DB Home Lending failed to provide required disclosures under TILA. Plaintiffs then stopped paying their mortgage, and the trustee, assigned by MERS, sent them a notice of default and initiated foreclosure.

In bringing forth a quiet title claim, the plaintiffs relied on Utah Code Ann. § 57-1-35, which states, “The transfer of any debt secured by a trust deed shall operate as a transfer of the security therefor.” The plaintiffs claim that under the statute, once the promissory note was transferred, the benefit of the deed of trust was transferred to the holder of the note, and only the holder of the note or its agent can transfer the beneficial interest in the deed of trust. According to the plaintiffs’ interpretation of the statute, MERS had no power to assign beneficial interest of the deed of trust because it did so when DB Home Lending no longer held the note. Thus, if the plaintiffs’ contentions were true, this would mean that those assigned beneficial interest by MERS had no authority to foreclose on the property in question.

The court, however, disagreed with the plaintiffs. In doing so, it pointed to prior case law that found § 57-1-35 “does not operate to strip the beneficiary of a Deed of Trust or its assigns of the power to foreclose on the secured property on behalf of the original lender or any of its assignees.” In the case at hand, “an assignee of the Deed of Trust foreclosed on behalf of an assignee of the note.” So, MERS had standing to assign a trustee and that trustee had authority to foreclose on behalf of DB Home Lending’s assignee. The quiet title claim was accordingly dismissed.

The plaintiffs also argued for relief under TILA. They asserted that they were not provided proper disclosures under TILA and that their loan was a consumer credit transaction subject to TILA’s rescission remedy under 15 U.S.C. § 1635. The court dismissed this claim as well, stating that plaintiffs’ action was outside of the statute of limitations because they failed to file the TILA action within three years of consummating their loan transaction. The loan in question was made on February 8, 2007 and the action was filed on May 9, 2011. The court found that the plaintiffs’ notice of intent to rescind, which was sent to the lender in August 2009, was irrelevant for statute of limitations purposes. Thus, the TILA claim was dismissed.

Utah District Court Holds that MERS Is Authorized to Begin Non-Judicial Foreclosure Despite the Lender’s Sale of the Loan

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In King v. American Mortgage Network, Inc., No. 1:09 CV 162 DAK, 2010 WL 3516475 (D. Utah Sept. 2, 2010), the United States District Court of Utah held that MERS and Chase Home Finance (“Chase”) were authorized to begin non-judicial foreclosure of the plaintiff’s property. In November 2007, Plaintiff received a loan to purchase a property in Utah. Pursuant to the loan, the plaintiff signed a promissory note and a deed of trust. MERS was designated as the beneficiary of the deed of trust and as nominee for the lender and the lender’s assigns. The deed of trust gave MERS authority to foreclose. The lender sold the note to a third party, the Federal National Mortgage Association (“Fannie Mae”), in February 2008. Shortly thereafter, the servicing rights under the note and deed of trust were transferred to Chase. Plaintiff then defaulted under the terms of the loan.

 

Plaintiff argued that Chase and MERS did not have authority to begin foreclosure of the deed of trust on the plaintiff’s property because the note and deed of trust “split” when the note was sold by the lender. The court disagreed with the plaintiff and stated that there is “no disconnection between the note and mortgage” when MERS is acting as nominee for a lender. While Fannie Mae now owns the note, Chase is the authorized loan servicer on behalf of Fannie Mae. Moreover, MERS is the nominal beneficiary under the deed of trust as agent for Fannie Mae and its “successors and assigns,” which includes Chase. The court concluded that Chase and MERS were “clearly authorized to act on behalf of the holder of the Note, Fannie Mae, to begin foreclosure of the Property.” Thus, the court dismissed the plaintiff’s claims against the defendants.

Utah District Court Holds that MERS Has the Authority to Initiate Non-Judicial Foreclosure and to Assign Interest to Another Party

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In Schmitt v. Stearns Lending, Inc., No. 2:11 CV 00381 DS, 2011 WL 3861609 (D. Utah Aug. 31, 2011), the United States District Court of Utah held that MERS has the authority to initiate non-judicial foreclosure on a property and to assign its interest to another party. In the case at hand, Plaintiff defaulted under the terms of a deed of trust and note securing the repayment of a loan obtained to purchase a home located in Utah. Non-judicial foreclosure proceedings ensued. The mortgage was previously securitized. Plaintiff argued that the securitization process divested Defendants’ interest in the subject property because the plaintiff’s deed of trust and note were separated during the process. The plaintiff also put forth a more general claim that Defendants lacked authority to foreclose on the subject property.

 

The court rejected the plaintiff’s claims and found that Defendants’ had interest in the property and had the authority to foreclose on it. The court stated that securitization did not divest Defendants’ interest in the subject property; rather, the court held that “the mortgage follows the note” throughout the securitization process. In addition, the court found that Plaintiff “agreed in the Trust Deed that MERS was the beneficiary and that MERS and its successors and assigns had the authority to foreclose on the subject property in the event of default by Plaintiff.” This language, according to the court, gives MERS authority to foreclose on property and assign interest on behalf of a lender. For the above reasons, the court granted Defendants’ motion to dismiss Plaintiff’s claims.