About Karl Dowden

Karl is a third year law student attending Brooklyn Law School. He received his B.A. from the State University of New York at Geneseo with a major in Political Science and a minor in Sociology. Karl has completed the required courses in order to receive a Certificate in Real Estate Law in addition to his Juris Doctor. He has substantial experience in affordable housing after completing internships at New York State Homes and Community Renewal, the umbrella organization for New York State's affordable housing agencies, and at Goldstein Hall, PLLC. He has also gained experience in both small business law and nonprofit law throughout the course of those internships.

Sixth Court of Appeals Clarifies Recording Fee Standing Issue

In Christian County Clerk, et al. v. Mortgage Electronic Registration Systems, Inc., et al., No. 12-5237 (6th Cir. 2013), the United States Sixth Circuit Court of Appeals heard a case on appeal from the United States District Court for the Western District of Kentucky. The case involved two county clerks suing MERS, its parent company (MERSCorp), and a number of financial institutions to collect the two counties’ lost recording fees as a result of MERS. The District Court dismissed the action under rule 12(b)(6) because the court found there is no private right of action under the relevant Kentucky statute that requires mortgage assignments be filed for recording with the county clerk’s office.

On appeal, the plaintiffs argued that the defendants either willfully or negligently violated Kentucky’s recording fee statute.

The court found that the Kentucky statutory scheme recognized three categories of persons protected under the recording fee statute: existing lienholders and lenders who record their security interests in the land to give notice of their secured status; prospective lienholders and purchasers; and property owners and borrowers whose loans have been satisfied. The court further found that the plaintiffs do not fall into the categories listed.

Next, the court rejected the plaintiff’s argument that officers charged with maintaining property records are within the class of persons protected by the statute. It found that the statute only permits causes of action for persons protected by statutes, not the public officers who administer the law.

The plaintiffs argued that the Kentucky legislature stated that its statutes “shall be liberally construed with a view to promote their objects and carry out the intent of the legislature.” However, the court found no indication in the legislative history that the legislature intended to protect county clerks so they rejected this argument as well.

The court then states that property owners and the Kentucky attorney general, “who presumably has the power to act to enforce the state’s statutes,” are parties that would have standing in this case.

The court then addressed the plaintiff’s claim of civil conspiracy and dismissed the claim because the cause of action required an underlying tort. In this case, since the negligence per se argument was dismissed, the civil conspiracy claim is dismissed as well.

Finally, the court dismissed the unjust enrichment claim because the action was based on the alleged willful violation of the recording statute, not on an implied contract as required for an unjust enrichment claim.

As a result, the court affirmed the district court’s dismissal of the case.

In Cooke v. Mortgage Electronic Registration Systems, Inc., et al., CA No. PC 2011-3487 (R.I. Sup. August 29, 2012), the plaintiff alleged that the assignment of the mortgage interest from MERS to the Federal National Mortgage Association, FNMA, was invalid. As a result, the plaintiff argued that FNMA did not have the statutory power of sale and lacked standing to foreclose. The court addressed the defendant’s motion to dismiss in this opinion.

The court found that both the allegations and the mortgage agreement executed were similar to Payette. As  result, the court adopted the reasoning in Payette and ultimately dismissed the claims that were similar. The court found that regardless of the plaintiff’s criticism of the Superior Court’s precedent, the court will follow it until “the Rhode Island Supreme Court determines that this Court’s previous analysis is inconsistent with its view of applicable Rhode Island law.”

The court also found the plaintiff’s reliance on case law from other jurisdictions was neither controlling nor persuasive. The plaintiff argued that a Supreme Court decision, Carpenter v. Longan, 83 U.S. 271 (1872), where the Supreme Court held that the note and mortgage is inseparable under Colorado law, should be applicable. However, the court noted that the Rhode Island General Laws permit the separation of the note and mortgage. In addition, the plaintiff also relied on Eaton v. Fed. Nat’l Mortg. Ass’n, No. 1-1382, 2011 WL 3322892 (Mass. Super. June 17, 2011), which held that the note and mortgage must be held to properly foreclose under Massachusetts law. However, this is not binding on the Rhode Island courts, which have precedent that “the assignment of the mortgage containing the language of the mortgage considered [in this case] does not create a fatal disconnect between the note and the mortgage.” In addition, the court found that there was no case law or statutory law that required the foreclosing party needs to hold both the note and mortgage to properly foreclose.

As a result, the court granted the defendant’s motion to dismiss.

Rhode Island Court Compares Case to Kriegal

In Chhun v. Mortgage Electronic Registration Systems, et al., C.A. No. PC 2011-4547, (R.I. Super. June 26, 2012), the plaintiff sought a declaration from the court to quiet title following a foreclosure sale.  The plaintiff claimed that the foreclosing party did not have the statutory power of sale at the beginning of the foreclosure proceedings.

The defendant made a motion to dismiss, which the court addressed in this opinion. The court found the allegations similar to the facts in Kriegel v. Mortgage Electronic Registration Systems and adopted the reasoning in the case.

The court notes that the plaintiff failed to distinguish their case from Rhode Island precedent and instead criticized both Kriegel and Payette. The plaintiff also argued that Bucci should not be followed because of the mortgagor’s allegations of fraud. The court dismissed these arguments as unpersuasive.

The plaintiff argued that the assignment between the Lender and MERS was invalid. However, the court found the plaintiff relied on case law from other jurisdictions that were not binding on this court. The court dismissed challenges to the assignment based on Colorado and Massachusetts case law and distinguished their holdings from the precedent in Rhode Island. The court also found that an allegation that “robo-signers” existed was not substantiated with facts to explain the allegation. The court then dismissed the challenge of the assignment because the plaintiff lacked standing.

The court ultimately held that the same outcome in Kriegel, a dismissal of the plaintiff’s complaint for failure to state a claim of relief, is warranted in this case.

 

Rhode Island Superior Court Addresses Issues Payette Did Not

In Kriegel v. Mortgage Electronic Registration Systems, PC2010-7099 (R.I. Sup. October 13, 2011), the court granted the defendant’s motion to dismiss the plaintiff’s claim. The plaintiff sought a declaratory judgment and petition to quiet title for his property. The plaintiff argued that the language in the mortgage barred the foreclosing party from having the right to execute the statutory power of sale.

The court relied on the holding in Payette v. Mortgage Electronic Registration Systems in finding that as a matter of law “foreclosure sales conducted by MERS or by one of MERS’ assignees [are] valid.” The court then went on to address the issues that Payette‘s holding did not cover.

The plaintiff alleged that he was misled into believing the original Lender was his mortgagee. However, the court found that “even if true … the clear and unambiguous language in the Mortgage instrument signed by Plaintiff [ ] designated MERS as the mortgagee and nominee to the lender numerous times.”

The court also relied on precedent to dismiss the plaintiff’s claim that designating MERS as the mortgagee disconnects the note and Mortgage, resulting in both becoming void.

The court next addressed a challenge of MERS’ assignment of the mortgage to FNMA, the foreclosing party. The court found that Payette held that “the homeowner lacked standing to challenge the propriety of MERS’ assignment of a mortgage.” In this case, the court acknowledged that Payette was decided on a summary judgment, while this case is a motion to dismiss. However, the court held that “because standing does not raise a question going to the merits of the controversy, it is also appropriately raised on a motion to dismiss.” Since the plaintiff was not a party to the assignment between MERS and FNMA nor did the assignment cause an injury in fact to the Plaintiff, the court dismissed this challenge as well.

Finally, the plaintiff challenged the ability of GreenTree, the servicer for FNMA, to foreclose. The plaintiff argued that GreenTree was not a “Lender” under either the Mortgage agreement or in the relevant statutory authority. However, the court found that the language of the Mortgage agreement states “the mortgagee or its assigns may invoke the Statutory Power of sale.” In addition, the court rejected the plaintiff’s narrow interpretation of the statute and found that GreenTree could properly foreclose the property.

The court ultimately granted the defendant’s motion to dismiss the plaintiff’s claims.

Rhode Island Superior Court Rejects Plaintiff’s Challenge of the Validity of MERS’s Assignment

In Cafua v. Mortgage Electronic Registration Systems, et al., C.A. No. PC 2009-7407, (R.I. Super. June 20, 2012), the plaintiff alleged defaults in the foreclosure process prevented the foreclosing party (HSBC) from having the statutory power of sale. Specifically, the plaintiff challenged the assignment of the note from MERS to HSBC on multiple grounds.

The plaintiff interpreted various statutes to require the note and mortgage to be held by the same entity at the time of foreclosure or at the time MERS assigned a mortgage to another entity. However, the court rejected the plaintiff’s interpretation and found that “Section 34-11-24 provides that an assignment of the mortgage shall also be deemed an assignment of the debt secured thereby.” As a result, the court found the assignment of the note from MERS to HSBC was valid. Additionally, the court stated that the plaintiffs “knew or should have known that foreclosure was the ultimate consequence of default by the [p]laintiffs under the clear, unambiguous language of the [m]ortgage instrument.”

The plaintiff then challenged the assignment based on a lack of authority. The plaintiff alleged that the party who executed the assignment on behalf of MERS was not an officer of MERS and held no authority to execute the assignment. Additionally the plaintiff alleged that the original lender did not authorize MERS to assign the mortgage. However, the court dismissed this theory because the plaintiff lacked standing to challenge the validity of the assignments. Since the plaintiff was not a party to the actual assignment, the plaintiff cannot challenge validity of the transaction on behalf of the assignee.

The plaintiff also alleged that the endorsement of the note in blank from MERS to HSBC was false and intentionally fabricated. Plaintiff argued that the failure of the endorsement to reference a date or he loan itself supports the allegation. However, the court found that in order to prove ownership, the note holder need only produce the note and that it payable or endorsed to the note holder. The only exception is if the borrower can show evidence of bad faith or fraud. In this case, the court found that the borrower did not introduce sufficient evidence to show bad faith or fraud. The court also relied on the UCC which states the signatures on an instrument is presumed to be authentic and authorized.

Rhode Island Superior Court Adopts Payette Opinion

In Breggia v Mortgage Electronic Registration Systems, et al., C.A. No. PC 2009-4144 (R.I. Super. April 3, 2012), the plaintiff brought a declaratory judgment claim to quiet title following a foreclosure sale. The plaintiff alleged a defective foreclosure sale occurred.

The defendants moved for an entry of judgment on the pleadings. During the course of the litigation, Porter was decided. As a result, the parties submitted supplemental memoranda to discuss the impact of the decision on their case. The court noted that the memoranda submitted by the defendants were not a part of the pleadings. In addition, the documents the plaintiff included were attached to a motion, not to the pleading. As a result, the court found that it may convert the motion to a motion for summary judgment because the parties, particularly the plaintiff who opposed the conversion, had a “reasonable opportunity to present all materials made pertinent to such a motion.” Payette v. Mortgage Electronic Registration Systems, No. PC-2009-5875, 2011 WL 3794701 (R.I. Sup. August 22, 2011).

In addressing the summary judgment motion, the court compared the facts of the case to Payette. The court found the plaintiffs failed to distinguish the facts in this case from the facts in Payette. The court found in both cases, the plaintiffs expressly granted MERS the statutory power of sale in the mortgage agreement. In addition, the plaintiffs granted MERS the power to assign its interests, which was done so in this case through a blank endorsement.

As a result, the court granted the defendant’s motion for summary judgment.

Court in Rhode Island Rejects the Disconnection Theory

In Payette v. Mortgage Electronic Registration Systems, No. PC-2009-5875, 2011 WL 3794701 (R.I. Sup. August 22, 2011), the plaintiffs do not challenge the allegation they defaulted on the note, however they challenged both the foreclosure sale and the title acquired by the buyer from the sale.

The court first determined whether a conversion of the motion for judgment on the pleadings was proper. Conversion of the motion for a judgment on the pleadings into a motion for summary judgment without expressly notifying the parties is permissible in Rhode Island. However, this requires notice that a conversion may occur. The court found that inviting a conversion qualifies as notice. In addition, the court found that the current case, which lasted two years, is longer than the ten month period that was found sufficient to justify converting a motion without previously notifying the parties.

The court stated that exhibits were attached to the motion for judgment on the pleadings. Evidence outside of the pleadings are not relevant to the judgment. As a result, if the “matters outside the pleadings are presented to and not excluded by the court, the motion “shall be treated as one for summary judgment.” Super. R. Civ. P. 12(c).

The plaintiff challenged previous assignments of the mortgage under the mortgage agreement and under Rhode Island’s statutes, allegedly resulting in the illegal foreclosure sale. However, the court adopted the reasoning in both Porter, which was recently decided, and Bucci. As a result, the court found that the assignments were proper under both the mortgage agreement (due to clear language granting the authority to MERS) and the statute (rejecting the plaintiff’s narrow statutory interpretation).

The court notes that in this case, MERS assigned its nominee status and mortgage interest to another party, which is different from the two cases. However, the court found the language to mortgage, grant, and convey [the property] to MERS … and to the successors and assigns of MERS’” clearly indicates that the MERS had the ability to assign the rights. In addition, the plaintiff gave MERS the authority to assign the rights in another provision of the agreement granting the “right to exercise any and all of [the lender’s] interests, including… [the right] to take any action required of Lender including, but not limited to, releasing this Security Instrument.”

A third argument by plaintiff is based on agency law, alleging a bankruptcy terminated the relationship between MERS and the original Lender. However, the court relied on Porter to reject the claim that the bankruptcy can negate the contractual agreement. The court found that MERS’ right to act as nominee for the Lender and for the Lender’s “successors and assigns” clearly maintains the relationship regardless of the state of the Lender.

The court next addressed a claim that the initial assignment of the Mortgage to MERS “disconnected” the note and mortgage, leaving both obligations invalid at their inception. This is very similar to the split note theory. However, the court relies on the “voluminous and well-reasoned authority” of other jurisdictions that rejected this theory to do the same. Additionally, the court notes that the analysis in Porter and Bucci presupposed that an assignment of the mortgage to MERS was valid. The court also found the mortgage and note were “clearly reunited” when both documents were transferred to the foreclosing party.

Finally the court addressed a challenge to MERS based on alleged misconduct of handling the plaintiff’s mortgage. However, the court found the plaintiffs lacked standing to challenge mortgage assignments and their effects. The court again relied on the reasoning of other jurisdictions that the court found persuasive. The court found the plaintiff’s allegations of misconduct by MERS (namely alleging their mortgage was robosigned) were not supported by evidence.

Ultimately, the court granted summary judgment for the defendants.