October 3, 2013
Texas Court Plaintiff’s Challenges the Authority of MERS to Assign its Lien Interest to a Successive Party
The Texas court in Eskridge v. Federal Home Loan Mortg. Corp., No. 6:10-CV-285, (W.D. Tex., 2011) dismissed Plaintiff’s claims to challenges the authority of MERS to assign its lien interest to a successive party.
The plaintiff unsuccessfully argued that she had superior title because the note as well as the deed of trust was split. Further, plaintiff alleged that MERS lacked authority under the note to transfer either the note and/or the deed of trust. Consequently, any transfer made by MERS in regard to the Note to BAC was allegedly void.
However, the court determined that the plaintiff lacked standing to contest the various assignments, as she was not a party to the assignments. The court further reasoned that even if she had standing, her allegations were without merit because MERS was given the authority to transfer the documents in the deed of trust.
October 3, 2013 | Permalink | No Comments
Ohio Court Dismisses Plaintiff’s Claim That Defendant Lacked Standing to Foreclose
The Ohio court in Turner v. Lerner, Sampson & Rothfuss, 776 F.Supp.2d 498 (2011) granted in part and denied in part the defendant’s motion to dismiss. The plaintiffs alleged that defendant [Lerner] engaged in the widespread practice of filing and prosecuting mortgage foreclosure actions, although many of Lerner’s clients lacked proper standing to sue.
The United States District Court, N.D. Ohio considered the plaintiff’s claims that there were violations of FDCPA and Ohio unfair practices act violations, based on the law firm’s filing of foreclosure lawsuits where its clients allegedly lacked proper standing because the law firm client’s employees executed allegedly fraudulent assignments of mortgages from non-party MERS.
In following recent Ohio case law, the court dismissed the case due to the plaintiff’s lack of standing the validity of the assignments of mortgages. The court noted that it was generally accepted law that a litigant who is not a party to an assignment lacks standing to challenge assignment of that note.
October 3, 2013 | Permalink | No Comments
October 2, 2013
Lifting a Shadow from Qualified Residential Mortgages
The self-named Shadow Financial Regulatory Committee of the American Enterprise Institute has issued a statement on The New Qualified Residential Mortgage Rule Proposal. The Shadow Committee argues that agencies promulgating the newest version of the QRM rule
completely abandoned the Act’s requirement for a separate high-quality QRM. Instead, they proposed a QRM that was essentially the equivalent of the QM. This not only violated the congressional intent and nullified the retainage, but it pushed the US mortgage system back toward the very policies that fed the housing bubble, the mortgage meltdown and the financial crisis. It responds to those want the mortgage finance system to make mortgage credit widely available, but it ignores the need for a stable system that will avoid a future crisis. (2)
This is not fully accurate. The QRM proposal does not violate congressional intent because Congress merely stated that the QRM be “no broader” than the QM. (Dodd-Frank Act Section 941) There is also a fair amount of fear-mongering here because the Shadow Committee does not propose how we can responsibly balance credit availability with systemic stability.
Nonetheless, the Shadow Committee is right to note that the rules governing mortgages must balance a number of competing goals.
When the proposed rule was released, I had written that it should incorporate a “benefit ratio” which
compares “the percent reduction in the number of defaults to the percent reduction in the number of borrowers who would have access to QRM mortgages.” (20) A metric of this sort would go a long way to ensuring that there is transparency for homeowners as to the likelihood that they can not only get a mortgage but also pay it off and keep their homes.
A benefit ratio would not only help ensure that homeowners received sustainable mortgages, but it would also address the systemic concerns raised by the Shadow Committee. This is because the benefit ratio would protect lenders from their own worse instincts as they lower their underwriting standards in pursuit of increased market share in a booming market.
October 2, 2013 | Permalink | No Comments
Southern District of California Bankruptcy Court Holds that MERS’ Role as Beneficiary Does Not Provide Protection Against Foreclosure Deficiencies
In In re Doble , BK 10-11296-MM13, 2011 WL 1465559 (Bankr. S.D. Cal. Apr. 14, 2011), the court held that MERS’ limited role as beneficiary of the deed of trust did not provide protection against foreclosure deficiencies. MERS’ role did not provide the banks with the authority to enforce the deed of trust, the ability to assign the note without an endorsement, or an exception to recordation obligation. The homeowner owned property encumbered by a deed of trust secured by a promissory note payable to Plaza Home Mortgage, Inc. The deed of trust identified Plaza as “lender” and MERS as the beneficiary.
October 2, 2013 | Permalink | No Comments
California Court of Appeals Holds that MERS has Authority to Assign Beneficial Interest
In Forbes v. Countrywide Home Loans, Inc., E051309, 2011 WL 4985965 (Cal. Ct. App. Oct. 20, 2011), homeowner had acquired a single-family residence and later refinanced the property by obtaining two loans. Mortgage Funding, Inc. was the lender of both loans, and the loans were secured by two deeds of trust that were recorded. ReconTrust, the successor trustee under the first deed of trust, initiated nonjudicial foreclosure proceedings by recording a notice of default. (Civ. Code, § 2924, subd. (a).) The notice of default includes a declaration stating: “Countrywide tried with due diligence to contact the borrower in accordance with California Civil Code Section 2923.5 . . . .” Countrywide was the original servicer of the loan, and later changed its name to BAC. ReconTrust then recorded a notice of trustee’s sale under the first deed of trust, and conducted a sale. MERS was the original beneficiary under the foreclosing first deed of trust. Pursuant to an instrument titled “Corporation Assignment of Deed of Trust”, MERS transferred its beneficial interest, “together with” the promissory note, to FNMA. Homeowner then filed a complaint asserting (1) breach of an oral forbearance agreement with BAC, under which BAC agreed not to foreclose on the property; and (2) “wrongful foreclosure” based on various irregularities or Civil Code violations in the foreclosure sale proceedings.
Court held that by executing the first deed of trust, homeowner agreed that MERS had the right to exercise, and could accordingly assign, “any or all” of the interests that homeowner granted to the Lender under the first deed of trust. These interests necessarily included the lender’s beneficial interest under the deed of trust, “together with” the lender’s right to collect all sums due under the note secured by the first deed of trust. Homeowner thus cannot state a cause of action to invalidate the sale or trustee’s deed based on his assertion that the deed of trust did not authorize MERS to initiate the foreclosure proceedings in the first instance, or based on his further assertion that the lender may not have, in fact, assigned the note to FNMA.
October 2, 2013 | Permalink | No Comments
California Court of Appeals holds that MERS Does Not Bear Burden of Proving Valid Assignment
In Fontenot v. Wells Fargo Bank N.A, No. A130478, 198 Cal.App.4th 256 (Ca. Ct. App. 1st Dist. Aug. 11, 2011), Fontenot sued Wells Fargo Bank, MERS and three other entities after she defaulted and lost the property to foreclosure. In the fourth amended complaint, plaintiff alleged the foreclosure was unlawful because Wells Fargo had breached an agreement to forbear from foreclosure, and MERS made an invalid assignment of an interest in the promissory note relating to the property.
Fontenot had given Alliance Bancorp a $1 million promissory note, secured by a deed of trust in the purchased real property. MERS was identified as the “nominee” of the lender in the deed of trust. The court held that first, MERS did not bear the burden of proving a valid assignment and second, the lack of a possessory interest in the note did not necessarily prevent MERS from having the authority to assign the note. It reasoned that MERS may have had no power in its own right to assign the note, since it had no interest in the note to assign, MERS did not purport to act for its own interests in assigning the note. Rather, the assignment of deed of trust states that MERS was acting as nominee for the lender, which did possess an assignable interest.
The court also found that there was nothing inconsistent in MERS’s being designated both as the beneficiary and as a nominee. The legal implication of the designation is that MERS may exercise the rights and obligations of a beneficiary of the deed of trust, a role ordinarily afforded the lender, but it will exercise those rights and obligations only as an agent for the lender, not for its own interests.
October 2, 2013 | Permalink | No Comments
October 1, 2013
Financial Education: Miles to Go Before We Can Sleep Easily
The CFPB has posted Financial Empowerment Training for Social Service Programs: A Scan of Community-Based Initiatives. The report opens well, with Gail Hillebrand, the Associate Director for Consumer Education and Engagement, noting that
Consumers need four things to be financially empowered. First, consumers need consistent access and the ability to choose among high-quality financial services. Second, consumers need sufficient information about the costs, the benefits, and the risks, of choices in the marketplace. Third, consumers need a set of financial habits and skills that constitute financial capability to help them to make the financial decisions that benefit themselves and their families. Finally, consumers need to know that they can get a better shot at achieving their own life goals if they affirmatively seek information, make choices, and take steps to control their financial lives. (1)
No argument there.
But the “scan” in this document makes me fear for a strong connection between what consumers need, as outlined above, and what existing programs are doing. Finding 9 of the report state that “Most training initiatives targeted at case managers recommended some form of assessment of the effectiveness of the initiatives, but few tracked whether case managers were using this information with clients.” (6-7)
This was the only finding that really talked about evaluating the success of financial education/empowerment initiatives. And it indicates that programs don’t really try to measure their implementation, let alone their effectiveness. I have earlier critiqued (and here) the CFPB’s financial education agenda and this most recent report only strengthens my belief that the CFPB should do more fundamental research on what actually helps consumers make good financial decisions before it begins to fund financial education initiatives.
October 1, 2013 | Permalink | No Comments
