February 11, 2013
Minnesota District Court Holds that a Mortgagee is not Required to Have an Interest in the Promissory Note in Order to Foreclose
In Butler v. Bank of Am., N.A., CIV. 11-461 DWF/TNL, 2011 WL 2728321 (D. Minn. July 13, 2011), Minnesota District Court denied the Butlers’ motion to remand and granted Bank of America, BAC Homes Loans Servicing, LP, and Peterson, Fram & Bergman, P.A. (PFB)’s motion to dismiss. The Butlers (homeowners) and “all others similarly situated” motioned to remand the case to state court while the Banks filed a motion to dismiss. In addition, PFB, who acted as foreclosure counsel for the Banks, also filed a motion to dismiss.
The Butlers are Minnesota homeowners who alleged that the Banks asserted an invalid and voidable mortgage against Butlers’ home. The Butlers alleged that 1) Defendants did not have actual physical possession of the Butlers’ original note, and 2) the Banks or their predecessors in interest securitized and sold the original note into a pooling and servicing agreement, and in the process of securitizing the note and mortgage, the Banks predecessors in interest purported to transfer legal title to the note and mortgage to a separate and distinct legal entity. Thus, the Butlers alleged that the Banks did not have valid, clear legal title to the original note and could not assert rights under the Mortgage nor remove the Butlers from their home. The Butlers also alleged that the original note was not an unconditionally enforceable negotiable instrument and therefore the banks could not assert the right to foreclose on the mortgage.
The Butlers supported their motion to remand by claiming that the federal district court did not have original jurisdiction under the Class Action Fairness Act (CAFA). The Butlers alleged that the Banks failed to offer evidence showing that the amount in controversy exceeded $5,000,000 and that the putative class contains at least 100 members. The Court noted, however, that the Banks had a litigation specialist testify that “BAC has researched its serving system and determined that there are more than 100 loans secured by property in the state of Minnesota that were acquired by Countrywide Bank, FSB, and subsequently acquired by BOA… records of these loans show that [the] remaining outstanding principle… exceeds, $25 million.” Thus, the Court concluded that the Banks offered sufficient evidence that the jurisdictional requirements were met under the definition of the putative class.
The Butlers also supported their motion to remand by alleging that the Banks offered nothing in support of their alternative claim of jurisdiction under 28 U.S.C. § 1332(a). The Banks contended that the Court had subject matter jurisdiction, via the parties’ diversity of citizenship, because the Butlers fraudulently joined PFB. The Court noted that when a Plaintiff joins a non-diverse party, Defendant may avoid remand to state court by demonstrating that the non-diverse party was fraudulently joined. Here, the Butlers fraud claim is based on the legal theory that the Banks cannot assert the right to foreclose because the Butlers’ original note was not an unconditionally enforceable negotiable instrument. The Court held that this legal theory had no basis in Minnesota law, and thus concluded that the Court had subject matter jurisdiction over the action.
Although the Butlers did not mention any wrongdoing on behalf of PFB, in response to PFB’s motion to dismiss, the Butlers claimed that they alleged fraud against all Defendants including PFB. Their claim depended upon the legal theory that only the holder of the promissory note may foreclose on a mortgage. However, the Minnesota Supreme Court in Jackson v. Mortgage Elec. Registration Sys., 770 N.W.2d 487 (2009) rejected this argument. Thus, the Court granted PFB’s motion to dismiss.
With regards to the Banks’ motion to dismiss, the Court stated that although the Butlers asserted sixteen causes of action, their sole wrongdoing alleged was that the Banks foreclosed on their property without holding the promissory note and without the legal authority to do so. However, the Court in Jackson held that a mortgagee is not required to have any interest in the promissory note in order to foreclose. Because the Butlers did not allege that the foreclosure proceeding was initiated on behalf of an entity other than the mortgagee holding legal title, and since documents submitted by the parties establish that the Mortgage was assigned to BAC; the assignment was recorded; and that the foreclosure sale was conducted in the name of BAC as record holder of legal title, the Court granted the Banks’ motion to dismiss.| Permalink