Editor: David Reiss
Brooklyn Law School

February 7, 2013

Minnesota District Court Holds that MERS Could Foreclose on Homeowners’ Property even though MERS was not the Holder of the Promissory Note

By Robert Huberman

In Kraus v. CitiMortgage, Inc., CIV. 11-3213 DWF/FLN, 2012 WL 1581113 (D. Minn. May 4, 2012), the Minnesota District Court found that homeowners/borrowers’ complaint lacked particularity.

Plaintiffs are thirteen homeowners and loan borrowers who executed promissory notes with six different lenders that relate to seven different properties. According to the complaint, five notes were secured by mortgages executed in favor of MERS and two were secured by mortgages executed in favor of CitiMortgage.

Plaintiffs allege that: 1) they executed original promissory notes and mortgages with entities different from Defendants who now claim the legal right to foreclose; 2) Defendants do not have physical possession of the original notes, Defendants sold the original notes through a pooling and servicing agreement, and Defendants purported to transfer legal title to the original notes to a separate and distinct legal entity; 3) Defendants cannot assert the right of foreclosure under the mortgages because they do not have clear legal title to the original notes; and 4) Usset is a law firm acting as an agent for purposes of enforcing defaults on Plaintiffs’ notes and foreclosing their mortgages. Plaintiffs allege that Usset falsely represented that its principal was entitled to foreclose and recorded false documents.

Defendants argue that Plaintiff’s Complaint violated Rule 8 of the Federal Rules of Civil Procedure. Under Rule 8(a)(2), a complaint must include “a short and plain statement of the claim showing that the pleader is entitled to relief. While the Rule 8 pleading standard does not require ‘detailed factual allegations,’ it does demand ‘more than an unadorned, the-defendant-unlawfully-harmed-me accusation.’ A complaint will not suffice if it ‘tenders naked assertion[s]’ devoid of further factual enhancement.’” Here, Plaintiffs’ complaint asserted thirteen causes of action involving thirteen Plaintiffs, seven different mortgage loans and properties, and four separate Defendants. Plaintiffs did not specify which factual claims were asserted against any particular Defendant. Thus, the Court concluded that such pleading was inadequate and that Rule 8 required greater specificity than found in Plaintiffs’ complaint.

Regardless, based on Jackson v. Mortg. Elec.  Registration Sys., Inc.,770 N.W.2d 487, 500 (2009); Stein v. Chase Home Finance, LLC, 662 F.3d 976, 980 (8th Cir. 2011); and Butler v. Bank of Am., Civil no 11 461, 2011 WL 2728321, at *6 (D. Minn. July 13, 2011), it does not matter whether Defendants could establish that they held the promissory notes in order for Defendants to initiate a foreclosure by advertisement. In addition, Plaintiffs did not allege that Defendants were not the record owners of any mortgage at the time they initiated a foreclosure by advertisement. Further, Plaintiffs did not allege facts showing a defect in the mortgage instrument or mortgage assignment. Thus Plaintiffs failed to establish why Defendants were not entitled to foreclose.

In addition, the court held that Plaintiffs’ fraud claim against Usset fails. Plaintiffs’ fraud claim depended upon the discredited argument that only the holder of the promissory note may foreclose on a mortgage by advertisement. Plaintiffs also failed to allege their fraud claim with sufficient particularity. Thus, ultimately, the court granted Defendants’ motion to dismiss in its entirety.

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