United States Court of Appeals, First Circuit, Remands Lower Court’s Decision by Ordering a Hearing With Reasonable Notice on the Whether the Injunction Should be Continued
After the decision handed down from Fryzel v. MERS, No. CA 10-352 (D.Ri., 2011) On appeal, the plaintiff-appellees in United States Court of Appeals, First Circuit, [(Fryzel, et. al. v. Mortgage Electronic Registration Systems, Inc., No. 12–1526 (D.Ri., 2013)] brought suit to prevent foreclosure or eviction, on the shared ground that ostensible assignments of their mortgagees’ legal titles are invalid, leaving the assignees without the right to foreclose.
By appeal and mandamus petition, the group of plaintiffs claimed error in the district court’s failure to provide notice and hearing before issuing successive orders imposing a stay in the nature of a preliminary injunction against foreclosure and possessory proceedings, and in its failure to set limits of time and cost when referring the mortgagors’ cases challenging foreclosure to a Special Master for mandatory mediation.
After considering the plaintiffs’ collective arguments, the First Circuit remanded with instructions to hold a prompt hearing with reasonable notice on the question whether the injunction should be continued, in belated compliance with Federal Rule of Civil Procedure 65(a)(1), and to establish specific limits of time and expense if the reference for mediation is to remain in effect.
October 9, 2013 | Permalink | No Comments
Rhode Island Court Rules That under State law, Only Parties to a Contract May Seek to Have Rights Declared Under a Contract
The Rhode Island court in deciding Fryzel v. MERS, No. CA 10-352 (D.Ri., 2011) decided that under Rhode Island law, only parties to a contract may seek to have rights declared under a contract. The court found that the plaintiff lacked standing to challenge the transfer of the promissory note or assignment of mortgage granted by Plaintiff.
The plaintiff’s complaint disputed AHMSI’s ability to foreclose by challenging the validity of the assignments of their mortgage. The plaintiff further claimed that AHMSI was not entitled to foreclose under the terms of the ‘Pooling and Servicing Agreement’. However, the court found that it was undisputed that plaintiffs were not parties to the assignment agreements or to the PSA. Thus, plaintiffs did not have standing to assert legal rights based on the specified documents.
October 9, 2013 | Permalink | No Comments
October 7, 2013
Post-Bubble Foreclosure-Prevention and -Mitigation Options in Your Town?
Bob Hockett has posted Post-Bubble Foreclosure-Prevention and -Mitigation Options in Seattle. I recommend it to those interested in issues beyond Seattle’s borders because it actually covers foreclosure-prevention and mitigation options across the country, although it looks at them with a Seattle focus.
He argues that
There is a potentially bewildering array of means available to at least some underwater homeowners, and these programs are also noteworthy for failing to solve the fundamental problems affecting these mortgages. There are three vitiating weakness share by nearly all of these means . . ..
The first weakness among currently available options is that they do not concentrate upon mortgage principal-reduction, meaning that they do nothing about the underwater status of underwater mortgage loans – which is the principal predictor of default and foreclosure – at all. Instead they rely upon temporary forbearance, term-extension, or interest rate reduction. . . .
The second weakness of the currently available options is that they are voluntary from the creditor’s point of view. That is problematic not because creditors lack in appreciation of their own enlightened self-interest or in desire to do the right thing, but because where there are structural or contractual barriers to principal reduction, as we shall see there are here in abundance, even creditor-benefiting such changes cannot occur on an adequate scale. Creditors are very often unable to do what benefits themselves and homeowners alike, meaning that voluntary programs can be useless.
Finally, the third weakness that the options discussed here suffer is that they do not extend to underwater PLS loans, which, as seen above, constitute the great bulk of troubled mortgage loans; they are in general available only to GSE and bank portfolio loans . . .. (11)
I found the review of “publicly encouraged debt relief” programs useful. (14) They include
- HAMP (the federal Home Affordable Modification Program)
- HARP (the federal Home Affordable Refinance Program)
- Miscellaneous Specialized HAMP Analogues
- FHA Short Refinance Program
- HAFA(federal Home Affordable Foreclosure Alternative)
- “Hardest Hit” Fund & Program (Treasury)
- HOPE NOW Alliance
- The Attorney Generals’ Settlement
Hockett also proposes some innovative approaches that he suggests that Seattle should consider including the use of eminent domain as well as a land bank. Worth the read.
October 7, 2013 | Permalink | No Comments
October 4, 2013
A Welling of Judicial Discontent
Reuters ran a story that provides the next chapter to my post, Federal Judge Declares War on Wells Fargo. The Reuters story is Massachusetts Judge Challenges Wells Fargo, Sparks Legal Fight (behind a paywall) and it reads in part:
A legal battle is heating up over an unusual challenge by a Massachusetts federal judge to banking giant Wells Fargo to waive what the judge called a technical defense in a mortgage lawsuit and to argue its case at trial.
Calling the judge’s order “unauthorized and unprecedented,” Wells Fargo has asked a federal appeals court to overturn it before it sparks “copycat” demands across the country.
It seems to me that Wells Fargo is right to be concerned about “copycat” demands across the country. My sense from reading many of the upstream and downstream cases that I blog about is that many judges have internalized the populist critique of financial institutions that has crystallized during the financial crisis. This came about, no doubt, in large part because of the relentless headlines about actionable and non-actionable misconduct by these institutions.
That being said, judges must apply the law impartially, so the First Circuit’s review of this case, Henning v. Wachovia Mortgage, F.S.B., n/k/a Wells Fargo Bank, N.A., No. 11-11428 (Sept. 17, 2013), will be of particular interest. The transcript of yesterday’s District Court hearing on a motion to stay the Henning case during the pendency of the appeal can be found here. Judge Young makes clear that he is not budging on the requirement that Wells Fargo produce a corporate resolution, although that order is stayed until the First Circuit decides the appeal.
October 4, 2013 | Permalink | No Comments
October 9, 2013
Enforcing The Mortgage Note
By David Reiss
Elizabeth Renuart has posted Uneasy Intersections: The Right to Foreclose and the UCC to SSRN. This is a subject that Brad and I have touched on a bit in the context of the Show Me The Note! defense, but Renuart has done a magisterial fifty state review of how state foreclosure laws interact with the Uniform Commercial Code which has been adopted in all 50 states (NY has an older version it on the books for now). The case law in this area is incredibly confused and confusing. The article helps to chart a path to navigate the intersection between these two areas of law.
Renuart provides a taxonomy of the caselaw, dividing it into three categories:
1. The UCC States: “courts in these states explicitly join the right to foreclose on a mortgage that secures the negotiable note with the” UCC. (44)
2. The Foreclosure-Statute-Definition States: “the courts focus on relevant words in the state’s foreclosure statute, such as ‘mortgagee’ where mortgages are used, ‘beneficiary’ where deeds of trust are used, ‘holder’, or ‘owner.’ Next, they determine if that state’s legislature intended that these designations refer to the note holder or the one with the right to act on behalf of the note holder. These courts may or may not reference the UCC in their decisions but the result generally is consistent with” the UCC. (45)
3. The UCC- Does-Not-Apply States: “courts in these states reason that the state’s foreclosure scheme is comprehensive, inclusive of the prerequisites to foreclose, or does not define the secured party as the one entitled to repayment on the secured monetary obligation. As a result, the UCC does not apply in any way to identify the party who possesses the right to foreclose. To date, these decisions have arisen exclusively in nonjudicial foreclosure states.” (47)
She concludes that the “methodology utilized in Category 1 and 2 states properly harmonizes the relevant UCC rules with state foreclosure law. Category 3 states dismiss the UCC’s role outright. It is these decisions that muddy the law and create inconsistent outcomes from state to state.” (47-48)
It is no exaggeration to say that the discussions about this topic in the blogosphere are virtually incoherent, so this article may provide guidance for those who are looking for it.
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October 9, 2013 | Permalink | No Comments