Author Archives: Robert Huberman

About Robert Huberman

Robert is finishing up his second year at Brooklyn Law School and expects to graduate in May 2014 with the Brooklyn Law School Real Estate Law Certificate. He received his B.A. from SUNY Binghamton University majoring in Philosophy, Politics, and Law, with a minor in History. He is currently interning at the New York City Department of Buildings and recently researched and wrote draft opinions on various mortgage and foreclosure issues, while interning with the Honorable William H. Pauley, in the Southern District of New York. This summer, he looks forward to clerking at Goldstein Hall PLLC where he will be working on affordable housing development and finance projects.

The Michigan Eastern District Court Grants MERS and other Defendants’ Motion to Dismiss Because Homeowners Failed to State a Claim

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In Safford v. Precision Funding, 09-14925-BC, 2010 WL 548504 (E.D. Mich. Feb. 9, 2010), the court granted Defendants’ motion to dismiss.

In August 2004, Jeffrey Safford and Denise Safford purchased their home and obtained a fixed rate mortgage loan for $124,000 with lender First Federal of Northern Michigan. In 2006 the Saffords refinanced their loan with Countrywide Home Loans Inc., and secured the note by granting a mortgage on the property to MERS as nominee for Countrywide and Countrywide’s successors and assigns. Precision Funding and other Defendants asserted that the Saffords defaulted on their loan. An advertisement for the mortgage sale was published four times between August 15, 2008 and September 5, 2008. MERS purchased the property for $150,411.92 at the foreclosure sale on October 10, 2008. Then, on October 15, 2008 MERS transferred its interest to Countrywide for one dollar by quit claim deed. The Saffords alleged that MERS, as a nominee, had no financial or other interest in whether or not a mortgage loan was repaid and no standing to pursue a foreclosure of the Saffords’ mortgage. Defendants motioned to dismiss the Saffords’ claims for failure to state a claim.

The Saffords first alleged that they relied on the representations of Defendants in entering into the refinances of their principal home loan. The court held that Defendants were entitled to dismissal of the Saffords’ fraudulent inducement claims because the Saffords plead conclusory statements rather than any particularized facts as to the actions of those Defendants. Next, the Saffords alleged a breach of contract claim against Defendants. The court dismissed the Saffords’ breach of contract claim, however, because it was barred by the statute of frauds—the Saffords did not allege the breach of a written agreement.

The Saffords alleged that none of the Defendants were the owners of the indebtedness nor had an interest in the indebtedness because it had been securitized to Precision One and not properly transferred to the other Defendants. Under Michigan law, a party may foreclose if “the party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” Here, the Defendants claimed that Countrywide foreclosed the loan and the Saffords alleged that Defendants did not have the requisite interest since the loan was securitized to Precision One. But the Saffords did not defend their allegation in response to the Defendants’ motion to dismiss, nor had they provided an explanation as to how the alleged securitization would affect Defendants’ interests. As a result, the court granted Defendants’ motion to dismiss

Massachusetts Bankruptcy Court Holds that Mortgagee has Standing to Request Relief from Stay Because Homeowner Lacked Equity in his Property

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In In re Lopez, 446 B.R. 12 (Bankr. D. Mass. 2011), the court granted Mortgagee’s Motion for Relief .

On October 28, 2004, Henry Lopez—the Debtor—executed a note in the amount of $360,000 to Shelter Mortgage Company, LLC. To secure that obligation, Lopez also granted a mortgage to MERS as nominee for Shelter. MERS subsequently assigned the Mortgage to Aurora Loan Services, LLC, and recorded it in the Registry on April 13, 2008.

Lopez filed a skeletal Chapter 13 petition on January 17, 2009. On September 3, 2010, Aurora filed a Motion for relief from stay asserting that Lopez was three post-petition payments in arrears, the promissory note was in default, the Property was not necessary for an effective reorganization, and Lopez lacked equity in the Property. Lopez argued that a Chapter 13 debtor’s home is necessary for an effective reorganization. He also asserted that Aurora could not seek relief from stay solely based on missed or reduced payments during the modification process.

For Aurora to have standing to bring a Motion for Relief, Aurora had to be “a party in interest.” In Massachusetts, a Mortgagee with a power of sale is a party in interest. Here, Aurora presented documents illustrating that MERS, as nominee for Shelter, was the original Mortgagee who assigned the Mortgage to Aurora. Thus, Aurora established a colorable claim to the Property as Mortgagee.

Lopez asserted that the Mortgage Assignment without the note was a nullity. But under Massachusetts law, “where a mortgage and the obligation secured thereby are held by different persons, the mortgage is regarded as an incident to the obligation, and, therefore, held in trust for the benefit of the owner of the obligation.” Even though MERS never had possession of the Note, it legally held the Mortgage in trust for the Note holder. Lopez also contended that MERS, as nominee of Shelter, could not assign the Mortgage to Aurora. But even though MERS never held the Note, it had nominee status and thus could transfer the Mortgage on behalf of the Note holder.

In determining whether relief from stay was warranted, Aurora had to show that their interest in Lopez’s Property was not adequately protected pursuant to 11 U.S.C. § 362(d)(1), or show Lopez’s lack of equity in the Property pursuant to 11 U.S.C. § 362(d)(2). Because Lopez’s total indebtedness was $389,615.16. The court held that his property value did not exceed his indebtedness. Thus, Lopez lacked equity in the Property.

Lopez also claimed that as a Chapter 13 debtor, there was an irrebuttable presumption that his home was necessary for an effective reorganization even though there is no equity in the Property. The court held that even if there was an irrebuttable presumption, it would still grant relief from stay because of Lopez’s post-petition arrears and the declining value of the Property in comparison to the increasing claims. Lopez then claimed that he had arrears because he was wrongly denied a modification under the Home Affordable Modification Program (HAMP). HAMP is supposed to help homeowners avoid foreclosure by obtaining loan modifications that reduce their monthly mortgage payments to sustainable levels. Borrowers seeking modifications under HAMP must satisfy a variety of eligibility requirements. Here, Lopez had not stated any theory through which he could assert standing to obtain the relief he sought. Thus, the court granted Aurora’s Motion for Relief.

The 11th Circuit Court in Georgia Holds that Homeowners’ Claim of Wrongful Foreclosure Must be Dismissed Because there Has Not Been an Actual Foreclosure Sale on the Property Yet

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In Jenkins v. McCalla Raymer, LLC, 492 F. App’x 968 (11th Cir. 2012), the court dismissed homeowners’ second amended complaint for failure to state a claim.

Wendy Jenkins and Eleanor Spratlin Crawford appealed from the District Court’s order dismissing their second amended complaint for failure to state a claim. Appellants were Georgia homeowners who brought a class action suit against McCalla Raymer, LLC and other various defendants alleging, among other things, wrongful foreclosure. On appeal, Appellants allege that: 1) the magistrate judge erred in failing to sua sponte recuse himself, and 2) the District Court erred in dismissing the appellants’ wrongful foreclosure claim.

28 U.S.C. § 455(a) requires a judge to recuse himself in any proceeding in which his impartiality might reasonably be questioned. The test is whether an “objective, disinterested, lay observer . . . would entertain a significant doubt about the judge’s impartiality.” McWhorter v. City of Birmingham, 906 F.2d 674, 678 (11th Cir. 1990). And pursuant to 28 U.S.C. § 455(b)(1), a judge is required to recuse himself only where the judge has an actual bias or prejudice against a litigant. Here, Appellants suggest that the magistrate judge should have recused himself because of his participation in two seminars on residential mortgage regulation.  In Appellants’ opinion, the recusal was required because the magistrate judge was presumably giving his judicial perspective on claims similar to the instant case. The court stated, however, that when a judge has spoken or written on a particular area of law, he does not automatically need to recuse himself unless specific remarks indicate that he harbors a bias towards or against a litigant or legal claim. The court then held that the magistrate judge was not required to recuse himself because Appellants did not provide information regarding the substance of the magistrate judge’s comments or topics discussed during the seminar. Thus, the court could not conclude that an objective observer would “entertain a significant doubt about the magistrate judge’s impartiality.”

Appellants’ also claimed that the non-judicial foreclosure proceedings were improperly commenced because certain defendants did not have the power to initiate the foreclosure proceedings—the security deeds were not properly assigned to the foreclosing parties. The court noted, however, that although there were no Georgia cases with law directly on point, other non-judicial foreclosure states have held that a homeowner cannot seek damages in a wrongful foreclosure action unless there has been an actual foreclosure sale. Because the Appellants failed to cite any authority indicating that Georgia courts would rule differently, the court concluded that Georgia law required a plaintiff seeking damages for wrongful foreclosure to establish that the property at issue was actually sold at foreclosure. Because Appellants failed to allege that their properties were foreclosed on, they did not state a claim for wrongful foreclosure. Thus, Appellants’ claim of wrongful foreclosure was properly dismissed.

The Michigan Court of Appeals Holds that Sheriff’s Sale was Invalid because MERS Foreclosed on Homeowner’s Property using Nonjudicial Foreclosure by Advertisement even though MERS was only a Mortgagee

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In Richard v. Schneiderman & Sherman, PC, 294 Mich. App. 37, 818 N.W.2d 334 (2011), the Michigan Court of Appeals held that MERS foreclosure by Advertisement was void ab initio.

Aaron Richard, homeowner, appealed an order granting summary disposition in favor of Schneiderman & Sherman, P.C., GMAC Mortgage, and MERS. Richard purchased the property in question through a $50,000 loan from Homecomings Financial network, Inc. The loan was secured by a May 4, 2006 mortgage with MERS, as nominee of Homecomings. On October 9, 2009, Schneiderman, acting as GMAC’s agent, mailed Richard a notice stating that his mortgage was in default and explained his right to request mediation. Ultimately, MERS began nonjudicial foreclosure by advertisement and purchased the property subsequent to the sheriff’s sale.

The court noted that in Residential Funding Co., LLC v. Saurman, the court held that MERS was not entitled to use a foreclosure by advertisement when it does not own the underlying note. The question here was whether Saurman should be granted full or limited retroactivity. The general rule is that judicial decisions are to be given complete retroactive effect. Cases given limited retroactivity apply in pending cases where the issue had been raised and preserved. Cases with full retroactivity apply to all cases then pending. Here, plaintiff contested the foreclosure, but he did not specifically raise and preserve the issue of whether MERS had the authority to foreclose by advertisement. Further, the court stated that the decision in Saurman was not tantamount to a new rule of law because it did not overrule a law or statute. Therefore, the court held that Saurman should be given full retroactive effect.

Thus, because MERS did not own the underlying note prior to the foreclosure by advertisement; Richard filed his claim during the redemption period; and since there was no evidence of a bona fide purchaser, Richard was entitled to relief under Saurman. The court reversed the trial court’s grant of summary disposition, vacated the foreclosure proceeding, and remanded the case for further proceedings.

United States Court of Appeals Holds that MERS has Standing to Foreclose on Homeowner’s Property because the Promissory Note, Mortgage, and Assignment were Valid and Homeowner Defaulted on His Loan

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In Yuille v. Am. Home Mortg. Services, Inc., 483 F. App’x 132 (6th Cir. 2012), the United States Court of Appeals Sixth Circuit held that homeowner’s quiet title claim failed because the note, mortgage, and assignment were valid and the homeowner defaulted on his loan.

Bruce Yuille obtained a $3.6 million loan secured by a mortgage on his residence. After Yuille defaulted on the loan, foreclosure proceedings began. Thereafter, Yuille filed a complaint against American Home Mortgage Services, Inc. (AHMSI), MERS, Duetsche Bank National Trust Company, and Oakland County Sheriff Michael J. Bouchard, seeking to stop the foreclosure and the scheduled sheriff’s sale. AHMSI removed the case to district court asserting diversity of citizenship, cancelled the sheriff’s sale, and stated that they would forego foreclosure until the conclusion of this litigation. The District Court granted Sheriff Bouchard’s motion to dismiss.

Yuille’s amended complaint asserted: 1) an action to quiet title; 2) defamation; 3) a violation of the Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act; and 4) a violation of the Michigan Consume Protection Act. Following discovery, Yuille and Defendants filled cross-motions for summary judgment. The District Court adopted the magistrate judge’s report and recommendation and granted Defendants’ motion for summary judgment. Yuille then appealed, only addressing the dismissal of his quiet-title claim.

The court held that Yuille was foreclosed from equitable relief under the unclean-hands doctrine because Yuille: 1) received $3.6 million in exchange for the note and mortgage, 2) failed to pay that debt as he agreed, and 3) then sought judicial assistance in avoiding his contractual obligations. In addition, Yuille’s quiet-title claim failed on the merits. Under Michigan law, the plaintiff bears the burden of proof in an action to quiet title; once the plaintiff makes a prima facie case of title, then the Defendants have the burden of proving superior right of title in themselves. Yuille claims that he established a prima facie case by presenting a certified copy of the warrant deed at the hearing before the magistrate judge.

The court, however, did not find the deed in the record. In addition, the court noted that “1) Yuille signed the note and mortgage, both of which identified the lender as American Brokers Conduit; 2) under the terms of the mortgage, Yuille mortgaged the property to MERS, as nominee of ABC and ABC’s successors and assigns, and to MERS’s successors and assigns; 3) Yuille failed to make payments as the note required; and 4) Deutsche, as trustee for the GSR Trust, is currently in possession of the note, which is endorsed in blank by ABC.” Defendants presented evidence that MERS assigned the mortgage to Deutsche, as trustee for GSR Trust. The court stated that any defect in the written assignment of the mortgage would make no difference where both parties to the assignment ratified the assignment by their subsequent conduct in honoring its terms. And since Yuille was a stranger to the assignment, he lacked standing to challenge its validity.

Thus, even if Yuille acted with clean hands, his quiet title claim failed. “The record established a valid note and mortgage, both of which had been assigned to Deutsche, as trustee for the GSR Trust, as well as Yuille’s default.” Hence, the court affirmed the district court’s judgment in favor of the Defendants.

The Georgia Northern District Court Holds that Homeowner does not have Standing to Stop Non-Judicial Foreclosure because Homeowner’s claim that MERS Fraudulently Assigned Homeowner’s Deed is not Casually Connected to the Foreclosure on her Property

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In Dehdashti v. Bank of New York Mellon, et al., 1:12-cv-595-TCB, (N.D.Ga. June 7, 2012), the Georgia Northern District Court dismissed homeowner’s claims because she did not have standing.

Manizeh Dehdashti alleged that Bank of New York Mellon and other Defendants lacked standing to foreclose on her home because MERS fraudulently assigned the deed securing Dehdashti’s home loan. Dehdashti also alleged that she made payments on her loan that were not properly accounted for. As a result, she sought to quiet title to her home, obtain money damages, and to have the court vacate the security deed. The Bank and MERS filed a motion to dismiss arguing that Dehdashti lacked standing to challenge the validity of the assignment because she was not a party to the assignment.

The court stated that in order for Dehdashti to have standing, she must have suffered an injury that was traceable to Defendants and would likely be redressed by a favorable decision. The court held that although the foreclosure of Dehdashti’s home was sufficient to establish an injury in fact, there was no connection between that injury and the action she complained of—MERS’s assignment of the security deed. The assignment did not affect whether the security deed’s power of sale could be exercised; instead, it affected who could exercise it. Further, “the only interest or right which an obligor of a claim has in the instrument of assignment is to insure him or herself that he or she will not have to pay the same claim twice.” But here, there was no risk that the power of sale would be exercised twice. Thus, Dehdashti’s claims were dismissed for lack of standing.

The court also dismissed Dehdashti’s claim that her loan payments were unaccounted for, because Dehdashti failed to show how those payments, if they were properly accounted for, would have prevented default.

Michigan Court of Appeals holds that Bank has Standing to Foreclose on Property by Advertisement because Bank had a Sufficient Interest in the Indebtedness Secured by the Mortgage as Record Holder of the Mortgage

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In Fawaz v. Aurora Loan Services LLC, 302840, 2012 WL 1521589 (Mich. Ct. App. May 1, 2012), the Michigan Court of Appeals held that Aurora Loan Servicing LLC had standing to foreclose on homeowners’ property by advertisement.

Nazih and Iman Fawaz obtained a loan from American Brokers Conduit Corporation which was secured by a mortgage on their residential property. MERS was designated the mortgagee with the right of foreclosure and the power of sale. When the Fawazs defaulted MERS assigned the mortgage to Aurora. Six months later, Aurora foreclosed on the property by advertisement. The Fawazs brought this action to quiet title on grounds that they had entered into loan modification negotiations with Aurora.

The Fawazs contend that the foreclosure was void because Aurora did not own or have any interest in the indebtedness secured by the mortgage. MCL 600.3204(1) governs foreclosure by advertisement and provides, in relevant part, as follows: “[A] party may foreclose a mortgage by advisement if all of the following circumstances exist: (d) The party foreclosing on the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” The Fawazs argue that MERS, as mortgagee, did not own or have an interest in their indebtedness and therefore when MERS assigned its interest to Aurora, such interest did not give Aurora the authority to foreclose by advertisement.

The court cited the proposition expressed in Residential Funding Co., LLC v. Saurman, 490 Mich. 909; 805 NW2d 183 (2011) that MERS, as mortgagee, owned a sufficient interest in the indebtedness secured by the subject mortgage because, as record holder of the mortgage, MERS owned a security lien on the property. Thus MERS could foreclose by advertisement. Thus, when MERS assigned its interests in the mortgage to Aurora, Aurora had the same authority to foreclose under MCL 600.3204(1). Therefore, the foreclosure was valid.