District Court Rejects Claims That MERS Lacked Standing
The court in deciding Pratt v. Bank of Am. NA, 2013 U.S. Dist. LEXIS 151671 (D. Me. 2013) granted Bank of America’s motion to dismiss.
Plaintiff alleged that the existence of forged documents related to a mortgage loan and that MERS lacked standing to transfer the plaintiff’s deed to Bank of America. The plaintiff wanted his promissory note returned to him along with the deed of trust.
The plaintiff’s assertion revolved around the claim that the separation of the deed of trust from the promissory note by the intervention of MERS as a nominee for Quicken Loans somehow breached the contracts between Pratt and Quicken or Bank of America. Plaintiff claimed that MERS, as nominee, had no “standing” to transfer the note and/or mortgage to Bank of America and that Bank of America has no “standing” to enforce these instruments.
Bank of America filed a motion to dismiss. The court denied the plaintiff’s motion to remand and his motion for entry of default. The court also granted Bank of America’s motion to dismiss.
December 10, 2013 | Permalink | No Comments
Lower Court’s Grant of Summary Judgement Affirmed by Nevada Court
The court in deciding Castro v. Bank of N.Y. Mellon, 2013 Nev. LEXIS 1602 (Nev. 2013) affirmed the lower courts judgment against the plaintiff.
Plaintiff obtained a home loan from Decision One Mortgage Company, LLC and executed a promissory note in favor of Decision One. The note was secured by a deed of trust naming Decision One as the lender and MERS, as the beneficiary and nominee of the lender. The deed of trust authorized MERS, as nominee of the lender, to transfer the deed of trust and appoint a successor trustee.
MERS assigned the deed of trust to defendant, who instituted this action for quiet title seeking to expunge the documents that appellants recorded. Defendant moved for summary judgment, which was not opposed by plaintiff. Plaintiffs provided no evidence of any kind to the district court, and the district court entered summary judgment in respondent’s favor.
The court considered the plaintiff’s assertions, and concluded that the district court properly entered summary judgment in defendant’s favor.
December 10, 2013 | Permalink | No Comments
Ohio Court Finds That Plaintiffs Were Not Bona Fide Purchasers
The Court of Appeals of Ohio, Fifth Appellate District, in deciding Bank of N.Y. Mellon v. Casey, 2013-Ohio-4686 (Ohio Ct. App., Fairfield County Oct. 21, 2013) affirmed the lower court’s judgment and held that the plaintiffs were not bona fide purchasers and the defendants had standing.
The court found that under the doctrine of lis pendens plaintiffs were not bona fide purchasers of a property encumbered by the mortgage because they took title during the pendency of a declaratory judgment action to which they were a party. Consequently, they did not take the property free from unrecorded liens. The claim that the mortgage was invalid was barred by res judicata as the validity of the mortgage was fully litigated in the declaratory judgment action.
Lastly, the court found that the defendant had standing to seek the foreclosure, as it was the current holder of the note and mortgage, and that it had physical possession of the note and mortgage documents.
December 10, 2013 | Permalink | No Comments
December 9, 2013
North Carolina Court Dismisses Plaintiff’s Claims of Fraud Against MERS, Bank of America, & Trustee Services of Carolina
The court in deciding Porterfield v. JP Morgan Chase Bank, Nat’l Ass’n, 2013 U.S. Dist. LEXIS 152318 (E.D.N.C. 2013) dismissed plaintiff’s claims and granted the defendant’s motion to dismiss.
Plaintiff asserted the following claims: (1) wrongful foreclosure; (2) fraud; (3) fraudulent misrepresentation; (4) fraud by use of MERS; (5) fraud through securitization; (6) promissory fraud; (7) unfair and deceptive trade practices; (8) violations of the Fair Debt Collections and Practices Act; (9) violations of the Real Estate Settlement Procedures Act; (10) slander of title; and (11) a quiet title action.
JPMorgan Chase Bank, N.A. and MERS motioned to dismiss pursuant to FED. R. CIV. P. 12(b)(6) and defendant Trustee Services of Carolina motioned to dismiss to Fed. R. Civ. P. 12(b)(6).
The court ultimately granted the defendants’ motions. Plaintiff’s claims against JPMorgan Chase Bank, MERS, and Trustee Services of Carolina, LLC were dismissed with prejudice.
December 9, 2013 | Permalink | No Comments
National Mortgage Settlement Update
Joseph A. Smith, Jr., the Monitor of the National Mortgage Settlement (NMS), has issued his Second Compliance Report (I blogged about an earlier report here) which has been filed in the District Court for the District of Columbia. According to the Monitor, Ally Financial and Wells Fargo were not in violation of the settlement at all during 2013 and BoA’s and Chase’s deficiencies were not widespread. Citi had a widespread deficiency.
The Monitor’s conclusion echoes his earlier report although his tone is more optimistic than last time:
It is clear to me that the servicers have additional work to do both in their efforts to fully comply with the NMS and to regain their customers’ trust. The Monitor Reports that I have just filed with the Court show, however, that the Settlement is addressing shortcomings in the treatment of distressed borrowers.
CAPs [corrective action plans], including remediation efforts when required, have been implemented or are in process. If the CAPs are not successful, the Monitoring Committee and I will take additional action, as dictated by the Settlement. In addition, we have applied what we have learned to enhance our oversight of the servicers by creating four new metrics to address persistent issues in the marketplace. (16)
The big five banks appear to be improving their compliance with the settlement, which is obviously a good thing. But there is still work to be done to improve loan servicing. The monitor notes the top ten complaints about servicers that were submitted by elected officials on behalf of their constituents:
1 Single point of contact was not provided, was difficult to deal with or was difficult to reach.
2 Single point of contact was non-responsive.
3 Servicer did not take appropriate action to remediate inaccuracies in borrower’s account.
4 Servicer failed to update the borrower’s contact information and/or account balance.
5 Servicer failed to correct errors in the borrower’s account information.
6 The borrower was “dual-tracked.” In other words, the borrower submitted an application for loss mitigation, and although it was in process or pending, the borrower was foreclosed upon.
7 Servicer did not accept payments or incorrectly applied them.
8 Servicer did not follow appropriate loss mitigation procedures.
9 The borrower received requests for financial statements they already provided.
10 The completed first lien modification request was not responded to within 30 days.
Total Executive Office complaints for all servicers: 44,570 (n.p.)
Obviously not every complaint is valid, but these numbers suggest that the settlement is not being fully complied with.
December 9, 2013 | Permalink | No Comments
December 6, 2013
(Non-)Enforcement of Securitized Mortgage Loans
Professors Neil Cohen and Dale Whitman, two important scholars who know their way around the UCC and mortgage law, will take on a highly contested topic in an upcoming ABA Professors’ Corner webinar: “Ownership, Transfer, and Enforcement of Securitized Mortgage Loans.” I blogged a bit about this topic a couple of days ago, in relation to Adam Levitin’s new article. There is a lot of misinformation floating around the blogosphere relating to this topic, so I encourage readers to register.
The full information on this program is as follows:
Professors’ Corner is a FREE monthly webinar, sponsored by the ABA Real Property, Trust and Estate Law Section’s Legal Education and Uniform Law Group. On the second Wednesday of each month, a panel of law professors discusses recent cases or issues of interest to real estate practitioners and scholars.
December 2013 Professors’ Corner
“Ownership, Transfer, and Enforcement of Securitized Mortgage Loans”
Profs. Neil Cohen and Dale Whitman
Wednesday, December 11, 2013
12:30pm Eastern/11:30am Cental/9:30am Pacific
Register for this FREE program at https://ambar.org/ProfessorsCorner
Our nation’s courts have been swamped with litigation involving the foreclosure of securitized mortgage loans. Much of this litigation involves the appropriate interaction of the Uniform Commercial Code and state foreclosure law. Because few foreclosure lawyers and judges are UCC experts, the outcomes of the reported cases have reflected a significant degree of uncertainty or confusion.
In addition, much litigation has been triggered by poor practices in the securitization of mortgage loans, such as robo-signing and the failure to transfer loans into a securitized trust within the time period required by the IRS REMIC rules. This litigation has likewise produced conflicting case outcomes. In particular, recent decisions have reflected some disagreement regarding whether a mortgagor — who is not a party to the Pooling and Servicing Agreement that governs the securitized trust that holds the mortgage — can successfully defend a foreclosure by challenging the validity of the assignment of the mortgage to a securitized trust.
Our speakers for the December program will bring some much-needed clarity to these issues. Our speakers are Prof. Neil B. Cohen, the Jeffrey D. Forchelli Professor of Law at Brooklyn Law School, and Prof. Dale A. Whitman, the James E Campbell Missouri Endowed Professor Emeritus of Law at the University of Missouri School of Law. Prof. Cohen is the Research Director of the Permanent Editorial Board for the Uniform Commercial Code, and a principal contributor to the November 2011 PEB Report, “Application of the Uniform Commercial Code to Selected Issues Relating to Mortgage Notes.” Prof. Whitman is the co-Reporter for the Restatement (Third) of Property — Mortgages, and the co-author of the pre-eminent treatise on Real Estate Finance Law.
Please join us for this program. You may register at https://ambar.org/ProfessorsCorner.
December 6, 2013 | Permalink | No Comments
December 10, 2013
Imposing Order on Recording Chaos
By David Reiss
Dale Whitman has posted A Proposal for a National Mortgage Registry: MERS Done Right. This is great timing because he will be touching on some of the issues raised in this article in tomorrow’s webinar. His proposal for a national mortgage registry also shares things in common with elements of Adam Levitin‘s recent proposal.
Whitman’s abstract reads:
In this Article, Professor Whitman analyzes the existing legal regime for transfers of notes and mortgages on the secondary market, and concludes that it is highly inconvenient and dysfunctional, with the result that large numbers of market participants simply did not observe its rules during the huge market run-up of the early and mid-2000s. He also considers Mortgage Electronic Registration System (MERS), which was designed to alleviate the inconveniences of repeatedly recording mortgage assignments, but concludes that it was conceptually flawed and has proven to be an inadequate response to the problem. For these reasons the legal system was ill-prepared for the avalanche of foreclosures that followed the collapse of the mortgage market in 2007, and continues to be beset by litigation and uncertainty. This Article then provides a conceptual outline for an alternative National Mortgage Registry, which would supplant the present legal system and would provide convenience, transparency, and efficiency for all market participants. He concludes with a draft of a statute that could be enacted by Congress to create such a registry.
The article concludes:
A national mortgage loan Registry structured along the lines outlined here would resolve all of the major legal problems that beset the secondary mortgage market today. To be specific, the following problems would be put to rest.
1. The lack of clarity in the distinction between negotiable and nonnegotiable notes that exists today would become irrelevant for purposes of loan transfer. Negotiable and nonnegotiable notes would be treated exactly alike and would be transferred in the same manner.
2. The need to physically deliver original notes in order to transfer the right of enforcement – an extremely burdensome and inconvenient requirement for negotiable notes in today’s market – would be eliminated. Transfers would take place electronically with assurance that they would be recognized by local law in all jurisdictions.
3. The necessity of recording mortgage assignments in local recording offices would be eliminated. MERS was designed to remove the need for such assignments (except at the point when foreclosure was necessary), but the national Registry would accomplish this without the artificiality and con-fusion engendered by MERS’ “nominee” status.
4. Borrowers would be protected against competing claims by purported mortgage holders because the Registry’s records of loan holdings would be conclusive. Whether in cases of loan modification, payoff and discharge, approval of a short sale, or foreclosure, a borrower would know with certainty whether a purported holder’s claim to the loan was authentic, and whether its purported servicer was authorized to act.
5. All foreclosures, both judicial and non-judicial, could be conducted with assurance that the correct party was foreclosing. The Registry’s certificate could be recorded under state law and become a part of the chain of title of property passing through foreclosure, thus permitting future title examiners to verify that the foreclosure was conducted by the person authorized to do so. Concerns of title insurers about the validity of titles coming through foreclosure, currently a major worry, would be largely eliminated.
6. The current confusion and litigation about separation of notes from their mortgages, and about what proof is needed to foreclose a mortgage, would be brought to an end. The Registry’s certificate would provide all of the documentary evidence necessary to foreclose.
7. The holder in due course doctrine, with its potential for unfair harm to borrowers, would probably disappear in the context of mortgage loans as secondary market participants abandoned the practice of physical delivery of mortgage notes.
The system for transferring mortgage loans with which we are saddled today is a shambles. The result has been enormous uncertainty and likely huge financial loss for investors, servicers, and title insurers. It is time for Congress to act to create a sensible, simple, and efficient alternative. (68-69)
Many (including Brad Borden and I) have argued that the current recording system is horribly flawed. It is unclear whether there is sufficient political will to engage in a structural reform at this time. If there is not, expect to see another foreclosure mess once the current one has played itself out.
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December 10, 2013 | Permalink | No Comments