Author Archives: Max Feder

About Max Feder

Max is a third year student at Brooklyn Law School expecting to graduate in June 2013 with a Juris Doctor and Certificate in Business Law. While in law school, he has interned for the New York City Mayor's Office, the Kings County Supreme Court Law Department, Brooklyn Law School's Corporate and Real Estate Clinic and a boutique Real Estate law firm. Max is currently interning at Gallet Dreyer & Berkey, LLP as part of the Transactional and Community Development Practicum.

U.S. District Court in Oregon Dismisses Borrower’s Claims Against Defendant Financial Institutions and Holds MERS Valid Beneficiary Under Deed of Trust

Posted on by

In Beyer v. Bank of America, 800 F.Supp.2d 1157 (2011), the U.S. District Court for the District of Oregon dismissed a borrower’s complaint against defendant financial institutions in its entirety and held MERS was a valid beneficiary under a deed of trust.

In June 2006, Beyer (“Borrower”) executed a note and deed of trust.  The deed of trust named MERS as the beneficiary and Fidelity National Title Insurance (“Fidelity”) as the trustee.

In December 2009, MERS assigned its beneficial interest in the deed of trust to Deutsche Bank National Trust Company (“Deutsche Bank”).  The deed of trust and the assignment were both duly recorded.

Thereafter, Borrower filed suit to prevent foreclosure and moved for a temporary restraining order (“TRO”)(the case did not describe the events surrounding the foreclosure other than those specified above).  Defendant financial institutions moved to dismiss the complaint for failure to state a claim.  The Court denied Borrower’s motion for a TRO and granted defendants’ motion dismissing the complaint in its entirety.

Borrower asserted four claims in the complaint, and the Court addressed them in turn:

First, Borrower argued defendants could not proceed with foreclosure without first presenting the promissory note.  The Court dismissed this claim because under Oregon Law, defendants were not required to present the note as part of the foreclosure process.  The statute requires only presentation of the deed of trust in a nonjudicial foreclosure, such as the one in this case.

Second, Borrower argued the deed of trust was null and void because it had been separated from the note, and therefore, Deutsche Bank (assignee of the beneficial interest in the deed of trust) was not entitled to foreclose.  The Court dismissed this claim because the Oregon Supreme Court has expressly permitted foreclosure where the deed of trust and note had been separated and later rejoined.

Third, Borrower argued defendants committed fraud by naming MERS as the beneficiary because under Oregon Law, MERS is not a beneficiary.  If Borrower’s claim were true, then MERS could not have validly assigned the deed of trust to Deutsche Bank.

The statute defines “beneficiary” as “the person named or otherwise designated in a [deed of trust] as the person for whose benefit a [deed of trust] is given.”  One line of cases interpreting this statute holds that because MERS was named as the beneficiary, MERS is the beneficiary under Oregon Law.  Another line of cases holds that while MERS is named as the beneficiary, the benefit of the deed of trust actually goes to the lender.  The Court, however, does not address this issue because MERS was both named as the beneficiary and designated as the person receiving the benefit of the deed of trust.

Under Oregon Law, the purpose of a deed of trust is to secure performance of an obligation owed to the beneficiary, so the benefit of a deed of trust is that the obligation is fulfilled.  Here, the deed of trust secured payment of the note, making the benefit of the deed of trust payment of the note.  Under Oregon Law, the “beneficiary” is the person for whose benefit the deed of trust is given.  Therefore, the beneficiary of the deed of trust is the person who has the right to payment of the note.  Borrower argued that the obligation (payment of the note) was owed to the lender, not MERS, and therefore, the lender was the proper beneficiary.

The Court disagreed, however, because the deed of trust expressly named MERS as the beneficiary, and the Court concluded that MERS was entitled to receive payment of the note, thereby making MERS a proper beneficiary.  In essence, the deed of trust granted MERS the right to exercise all rights and interests of the lender “if necessary to comply with law or custom.”  This includes the right to receive payment of the note.  The deed of trust repeatedly referred to MERS as the beneficiary, and this would not comply with Oregon Law unless MERS had the right to receive payment of the note.  Therefore, the Court rejected Borrower’s arguments and dismissed this claim because MERS was a proper beneficiary of the deed of trust.

The Court also noted that this holding is consistent with public policy because it makes no change to the Borrower’s rights or obligations.  It only changes the party to whom those obligations are owed.  Moreover, this conclusion best carries out the intent of the parties, who clearly intended for MERS to be the beneficiary. 

Finally, Borrower argued defendants committed fraud by authorizing non-employees to execute transfer documents.  The Court dismissed this claim because Borrower failed to put forth any reason why defendants could not authorize these parties to act as their agents in executing these transactions.  The mere fact that the signatories were not “regular employees” is not enough to establish a claim for fraud.

Florida Appellate Court Reverses Summary Judgment in Favor of Bank in Foreclosure Action Because of Issues of Fact as to Whether Bank Had Standing to Foreclose

Posted on by

In BAC Funding Consortium Inc. ISAOA/ATIMA v. Jean-Jacques, 28 So.3d 936 (2010), the Second District Court of Appeal of Florida (“Court”) reversed the trial court’s entry of summary judgment in favor of a bank in a foreclosure action because a genuine issues of material fact existed as to whether the bank had standing to foreclose.

In December 2007, US Bank National Association (“US Bank”) filed a complaint seeking to foreclose a mortgage and reestablish a lost note.  US Bank attached a copy of the mortgage to the complaint, but the mortgage identified Fremont Investment and Loan (“Fremont”) as the lender, and MERS as the mortgagee.

Instead of answering the complaint, BAC Funding Consortium Inc. (“BAC”) moved to dismiss on the grounds that US Bank lacked standing to foreclose because US Bank failed to show it actually held the note or mortgage in question.

In its response, US Bank attached a purported assignment of mortgage.  However, the assignment was neither executed nor notarized, and the space for the name of the assignee was blank.  Further, US Bank did not provide anything in its response to authenticate the assignment or otherwise render it admissible into evidence.

US Bank then voluntarily dismissed its action to reestablish the lost note, but moved for summary judgment on the foreclosure issue.  With its motion, US Bank filed the original note and mortgage, but neither document identified US Bank as the holder.  US Bank did not file the original purported assignment or any other document establishing its right to foreclose.

Despite the foregoing, the trial court granted US Bank’s motion for summary judgment.  BAC appealed, arguing that summary judgment was improper because US Bank never established it had standing to foreclose.

The Court reversed and remanded because US Bank failed to carry its burden entitling it to summary judgment.  Specifically, there were genuine issues of material fact as to whether US Bank had standing.  The exhibits attached to the complaint conflicted with US Bank’s assertions, the note did not identify US Bank as the lender or holder, and US Bank did not provide an assignment or other evidence establishing it as the holder.

US Bank argued that it was not required to file an assignment of the note or mortgage or otherwise prove that it validly held them in order to be entitled to summary judgment.  The Court disagreed for two reasons.  First, although BAC did not answer the complaint, US Bank was still required to show that no genuine issue of material fact could be raised if an answer were filed.  Here, the record reveals US Bank failed to meet this requirement.  Second, regardless of whether BAC answers the complaint, US Bank was required to establish through admissible evidence that it had standing to foreclose before it would be entitled to summary judgment.  Here, the incomplete, unsigned and unauthenticated assignment was not admissible evidence, and US Bank provided no other evidence of its standing.

As a result, the Court held the trial court’s entry summary judgment was inappropriate and reversed and remanded for further proceedings.

Florida Appellate Court Holds Bank Has Standing to Foreclose because MERS Properly Assigned the Note to it and Lack of Ownership of the Beneficial Interest in the Note Does Not Deprive an Assignee of Standing

Posted on by

In Taylor v. Deutsche Bank Nat. Trust Co., 44 So.3d 618 (2010), the Fifth District Court of Appeal of Florida held Deutsche Bank Nat. Trust Co. (“Deutsche Bank”) had standing to foreclose because MERS properly assigned the note to it and a lack of a beneficial interest in the note does not deprive an assignee of standing in a foreclosure action.

Taylor (“Borrower”) executed a note and mortgage in favor of First Franklin, a division of National City Bank of Indiana (“First Franklin”).  The mortgage identified MERS as nominee for First Franklin.  MERS, as nominee for First Franklin, assigned the mortgage to Deutsche Bank.

Following Borrower’s default under the note, Deutsche Bank commenced foreclosure, and moved for summary judgment.  Borrower argued Deutsche Bank lacked standing to foreclose alleging that the note was not assigned to Deutsche Bank and that the mortgage was not properly assigned to Deutsche Bank.  Specifically, Borrower argued that because the note was not indorsed and neither contained an allonge nor a specific assignment, the note was payable to First Franklin, and therefore, Deutsche Bank lacked standing to enforce it.  Borrower argued that under Florida Law, only the “holder” in due course could seek foreclosure.

The Court disagreed, however, and held that ownership of a beneficial interest in the note is not required to commence foreclosure.  Standing to foreclose may be derived either by being the holder of the note or a nonholder in possession who has the rights of a holder.  Here, the mortgage granted MERS the status of a nonholder in possession with the rights of a holder (the case did not elaborate on how MERS came to be in possession of the note).  Although MERS was not the party seeking foreclosure, the written assignment explicitly passed the right to enforce the note to Deutsche Bank.  As a result, the Court held that MERS properly assigned the note and mortgage to Deutsche Bank, and therefore, Deutsche Bank had standing to foreclose.

Florida Appellate Court Holds That if MERS was Holder and Owner of Note, it Would Have Standing to Foreclose

Posted on by

In MERS v. Azize, 965 So.2d 151 (2007), the Second District Court of Appeal of Florida reversed the trial court’s dismissal of a foreclosure action with prejudice and remanded because lack of ownership of the beneficial interest in a note does not deprive MERS of standing to foreclose.

In 2004, Azize (“Borrower”) executed a note in favor of Aegis Lending Corporation (“Aegis”).  The mortgage identified MERS as mortgagee, and further identified MERS as nominee for Aegis.

In February 2005, MERS filed a complaint seeking to reestablish the note and to foreclose the mortgage.  In the complaint, MERS alleged it was the owner of the note and the note had been lost or destroyed after MERS acquired it.  MERS argued that because the note was in its possession when it was lost, MERS was entitled to enforce it.  The complaint did not allege how MERS came into possession of the note, but Borrower did not contest the allegation and the trial court’s decision was not based on that issue.  Instead, the trial court dismissed the complaint with prejudice for failure to state a claim because MERS lacked standing to foreclose since it did not own the beneficial interest in the note.  The trial court’s decision was also based on the premise that one corporation cannot serve as the agent for another.  MERS appealed.

The Court reversed and remanded.  Under Florida Law, the holder of a note has standing to seek enforcement of the note, and standing is broader than simply ownership of the beneficial interest.  The Court noted that if MERS could establish a prima facie case that it was the owner and holder of the note and mortgage, it would have standing to foreclose.  Furthermore, the Court noted that the trial court’s conclusion that MERS further lacked standing because “one corporation cannot serve as the agent for another corporation” is incorrect.

U.S. District Court in California Holds MERS has Standing to Foreclose and Dismisses Borrower’s Complaint Against MERS because the Claims were Premised upon MERS’ Lack of Standing

Posted on by

In Germon v. BAC Home Loans Servicing LP, 2011 WL 719591 (S.D.Cal. Feb. 22 2011), the U.S. District Court for the Southern District of California (“Court”) dismissed a borrower’s complaint against MERS and others (“Defendants”) because the borrower failed to state a cause of action.

In 2007, Germon (“Borrower”) executed a note in favor of Countrywide Bank, FSB (“Countrywide”). The Deed of Trust identified ReconTrust (“Recon”) as the Trustee and MERS as the beneficiary.

On May 4, 2010, following Borrower’s default under the note, Recon duly recorded a notice of default. On May 6, 2010, MERS assigned its beneficial interest in the note to BAC Home Loans Servicing, LP (“BAC”). On August 11, 2010, Recon duly recorded a notice of trustee’s sale, which was set for September 3, 2010. Borrower then requested to modify the loan, and BAC agreed to postpone the sale until October 1. Ultimately, BAC denied Borrower’s request for loan modification, and on October 1, BAC purchased the property at the trustee’s sale.

Thereafter, Borrower filed a complaint seeking to set aside the trustee’s sale, cancel the trustee’s deed and quiet title in Borrower. In its complaint, Borrower alleged, inter alia, breach of contract, breach of the implied covenant of good faith and fair dealing (“implied covenant”), and violations of the Federal Fair Debt Collection Practices Act (“FDCPA”) and Truth in Lending Act (“TILA”). The Court dismissed the complaint in its entirety for failure to state a claim.

The Court dismissed Borrower’s claims to set aside the trustee’s sale, cancel the trustee’s deed and quiet title because each claim rested upon the erroneous premise that MERS lacked authority to foreclose and to assign its beneficial interest in the note to BAC. First, the Court held the deed of trust clearly granted MERS authority to initiate foreclosure and to assign that right. Second, the Court rejected Borrower’s argument that only the “holder of the note” can initiate foreclosure because under California Law, the “trustee, mortgagee, or beneficiary” may institute nonjudicial foreclosure like the one in the present case. The Court also noted that Borrower failed to tender the balance of the unpaid debt, which is a prerequisite for claims to set aside a Trustee’s Sale and cancel a Trustee’s Deed.

Similarly, the Court dismissed Borrower’s claims alleging breach of contract and breach of the implied covenant because they too were based upon the erroneous premise that MERS lacked standing to foreclose and to assign its beneficial in the note.

Borrower also alleged BAC breached the implied covenant by “mishandling” Borrower’s financial data when reviewing the loan modification request, and by denying the request without allowing Borrower to resubmit the correct data prior to the foreclosure sale. The Court dismissed this claim because absent an express contractual term requiring loan modification, the Borrower could not create the obligation by alleging a breach of the implied covenant.

The Court dismissed Borrower’s FDCPA claim because it too relied upon the erroneous premise that MERS lacked standing to foreclose.

Finally, the Court dismissed Borrower’s TILA claim because it was time-barred by the one-year statute of limitations.

 

U.S. Bankruptcy Court in Kentucky Holds MERS Valid Nominee of Mortgage, Had Authority to Assign Mortgage, and Lender Properly Assigned Note to Citi

Posted on by

In In re Jessup, 2010 WL 2926050, the U.S. Bankruptcy Court for the Eastern District of Kentucky (“Court”) denied the bankruptcy trustee’s (“Trustee”) motion for summary judgment in a suit to set aside Defendants’ mortgage lien against the bankruptcy debtors’ (“Debtors”) property.

In February 2007, Debtors executed a note to Homeland Capital Mortgage (“Lender”), and granted a mortgage to Defendant MERS as nominee for Lender.  The mortgage identifies the mortgagee as MERS as nominee for Lender.  In March 2007, the mortgage was duly recorded, and the note with “blank indorsement” was transferred to Defendant CitiMortgage, Inc. (“Citi”).  In January 2008, MERS assigned the mortgage to Citi.  In February 2008, the assignment of mortgage was duly recorded.

In March 2009, Debtors filed for Chapter 7 bankruptcy relief.  In September 2009, the Trustee filed a complaint to “Determine Validity, Extent and Priority of Liens and for Sale of Real Property,” and the parties cross-moved for summary judgment.  In essence, the Trustee seeks to set aside Citi’s mortgage lien as invalid pursuant to the Trustee’s “strong-arm power” under Section 544 of the U. S. Bankruptcy Code.

The Trustee set forth three bases for his contention:

First, the Trustee argued there was no evidence Lender appointed MERS as nominee, and therefore, no valid mortgagee was named in the mortgage.  The Trustee argued Lender failed to provide a written nomination of MERS to act as mortgagee.  The Court rejected this argument, however, and held the language in the mortgage itself was sufficient to identify MERS as nominee.

Second, the Trustee argued MERS lacked authority to assign the mortgage to Citi.  The Trustee argued MERS failed to provide evidence that it nominated an “Authorized Signator” to execute the assignment.  In fact, the person who executed the assignment was an employee of an entity authorized to execute MERS documents, but was inadvertently left off the list of officers authorized to execute MERS documents.  Defendants submitted an affidavit of the Secretary of MERS, which stated the assignment was executed with MERS’s authority an consent.  The Court held the ratification in the affidavit was sufficient to establish MERS’s authority to execute the assignment to Citi.

Finally, the Trustee argued Citi was not holder of the note.  Under Kentucky Law, a note is negotiated by “special indorsement” from one creditor to another, or by “blank indorsement.”  Blank indorsement converts the note into bearer paper that may be negotiated by transfer of possession alone.  The Court held Lender transferred the note with blank indorsement to Citi, and since Citi had physical possession of the note payable to bearer, it is the holder entitled to enforce it.

Kentucky Court of Appeals Holds that Bank Lacked Standing Because it did Not Obtain an Interest in the Note Until after Commencing the Foreclosure Action

Posted on by

In Morgan v. HSBC Bank USA, NA, 2011 WL 3207776 (Court of Appeals of KY, 2011), the Court of Appeals of Kentucky reversed the trial court’s judgment as a matter of law that HSBC Bank USA, NA (“HSBC”) had standing to enforce a note against Morgan (“Borrower”) in a foreclosure action, and remanded for further proceedings.

In August 2005, Borrower executed a note to Ownit Mortgage Solutions, Inc. (“Ownit”), and granted a mortgage to MERS as nominee for Ownit.  In early 2008, Borrower defaulted under the note.

On July 31, 2008, HSBC commenced foreclosure proceedings against Borrower.  HSBC claimed to be holder of the note, but stated a copy was unavailable at the time it filed the complaint.  Borrower moved to dismiss arguing, inter alia, there was no proof HSBC had standing because it failed to attach a copy of the note to its complaint.  In its response, HSBC attached a copy of the note between Ownit and Borrower.  HSBC was not a party to the note.

On August 11, 2008, an assignment of mortgage from Ownit to HSBC dated August 4, 2008 was recorded.

On December 3, 2008, HSBC moved for summary judgment, and attached a copy of the note to its motion.  The note included an undated note allonge purportedly assigning it to HSBC.

The trial court denied Borrower’s motion to dismiss and granted HSBC’s motion for summary judgment holding the endorsement in the note allonge was sufficient proof that HSBC was the holder of the note.

The Court of Appeals reversed, describing the foregoing sequence of events a “troubling.”  Specifically, the court was uneasy about the fact HSBC did not attach a copy of the note it its complaint, and then later the undated note allonge purportedly assigning the note to HSBC appeared in the record.  Further complicating the issue was the fact HSBC did not obtain an interest in the mortgage until after it commenced the foreclosure action.  As a result, the Court of Appeals held the trial court erred because (1) the record was insufficient to determine when HSBC obtained an interest in the note, and (2) HSBC did not obtain an interest in the mortgage until after it commenced the foreclosure action against Borrower.