September 19, 2013
California Court of Appeals Holds That the Right to Challenge a Nominee’s Authority to Foreclose on Behalf of Note Holder Would Fundamentally Undermine the Non-Judicial Nature of the Process
The Fourth District California Court of Appeals in considering Gomes v. Countrywide Home Loans, Inc., 192 Cal.App.4th 1149 (2011), affirmed the lower court’s decision upholding MERS’ ability to initiate non-judicial foreclosure actions.
The appellant argued that he was entitled to bring a lawsuit to challenge whether MERS was authorized to initiate a foreclosure action, however the California Court of Appeals rejected this argument. In rejecting the appellant’s argument, the court held that the text of the statue failed to provide a judicial action to determine whether the person initiating the foreclosure process is indeed authorized. Further, the court noted that there were no grounds for implying such an action.
The Court found that “the recognition of the right to bring a lawsuit to determine a nominee’s authorization to proceed with foreclosure on behalf of the note holder would fundamentally undermine the non-judicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures.”
September 19, 2013 | Permalink | No Comments
September 17, 2013
United States District Court Rules That MERS Had The Power to Assign the Deed of Trust
The United States District Court of the Eastern District of California in deciding Coburn v. Bank of New York Mellon, N.A., 2:10-CV-03080 (2010) granted defendants’ motion to dismiss. The court also handed down the ruling that the plaintiff’s claim of deceit was without merit.
The plaintiff argued that MERS simply lacked the power to assign the deed of trust to The Bank of New York Mellon since MERS was neither the owner of the mortgage nor holder of the note. The court rejected this assertion.
The court held that MERS had the authority to assign its beneficial interest to another party. The court also held that MERS did not violate California Civil Code §1095 in assigning the deed of trust to the bank.
September 17, 2013 | Permalink | No Comments
Arkansas Court Finds That Based on Security Agreement, MERS Was the Mortgagee
The Arkansas court considering Coley v. Accredited Home Lenders, Inc. et al, 4 10 CV01870 (E.D. Ark. 2011) ultimately granted the defendants’ motion for dismissal. The court granted the dismissal with prejudice as to the plaintiff’s wrongful foreclosure claims. The court however, did not apply dismissal with prejudice to the plaintiff’s fraud claim.
The court held MERS acted within its role as agent when it transferred the mortgage to the foreclosing lender. Likewise, the court held, and ruled that the assignment to MERS was valid as such the court dismissed the wrongful foreclosure claim.
The plaintiffs based their argument on the allegation that the foreclosing lender lacked standing to foreclose. The plaintiff based this assertion on the claim that MERS was not authorized to transfer or assign the mortgage to the foreclosing lender and that the lender named in the security agreement was the only entity that could pursue foreclosure. The court, however found that MERS was the mortgagee under the security agreement as an agent of the originating lender.
September 17, 2013 | Permalink | No Comments
September 16, 2013
Misrepresentation and Wholesale Misrepresentation
Federal Judge Lungstrum (D. Kan.) issued a Memorandum and Order in National Credit Union Administrative Board v. RBS Securities, Inc. et al., No. 11-2340 (Sept. 12, 2013). The Board, as conservator and liquidating agent of the U.S. Central Federal Credit Union, alleged that the defendants made “untrue statements or omissions of material facts relating to” a number of RMBS. The main allegation is that “the originators for the loans underlying the [RMBS] certificates systematically abandoned underwriting guidelines, and that the certificates’ offering documents failed to disclose that fact or misrepresented that guidelines were followed.” (3) The court found that
plaintiff’s forensic analysis, based on the particular loans underlying the six dismissed offerings, support a plausible claim of misrepresentations involving the LTV and owner-occupancy ratios. Not only are those alleged misrepresentations independently actionable, they provide a connection to the particular certificates at issue and thus support a plausible claim based on the abandonment of underwriting guidelines. That is true for claims based on these six offerings, even without originator-specific allegations. Accordingly, the Court denies the motion by RBS and Wachovia to dismiss certain claims on this basis. (7)
Courts have been increasingly willing to draw a distinction between run of the mill misrepresentation and systemic misrepresentation (see here and here for instance). This will have a big impact on how reps and warranties are drafted going forward as well as, obviously, the scope of theories of liability for breach of contract in the context of securities offerings.
September 16, 2013 | Permalink | No Comments
September 18, 2013
Show Me The Note, NY Style
By David Reiss
Steiner, Goldstein & Sohn published a short article in the New York Law Journal, Clearing The Confusion: Misplaced Notes and Allonges (Sept. 18, 2012) (behind a paywall). While intended to address commercial real estate finance, it relies on an interesting residential real estate finance case, Bank of N.Y. Mellon v. Deane, 2013 Slip Op. 23244 (Sup. Ct. Kings Country July 11, 2013). The authors write that
Mortgage assignments, when properly drafted, assign both the mortgage and the note. Assuming the chain of mortgage assignments is intact, lenders can gain comfort knowing that under New York case law they have standing to enforce the full amount of the debt evidenced by these assignments. Nevertheless, defendants in foreclosure proceedings often challenge the lenders’ standing to enforce the note, demanding that lenders demonstrate physical possession of the note to initiate a foreclosure despite the fact that physical possession is not required by the law.
They conclude:
New York courts in the cases described herein consistently follow well-established precedent permitting standing in a foreclosure action without the plaintiff having physical possession of the original notes. New York case law makes clear that physical possession of all notes in a chain of loan assignments and refinancings is unnecessary for standing in a foreclosure action and that proper execution of a [Consolidated Extension and Modification Agreement] is sufficient to confer standing when missing notes have been consolidated. Likewise, inclusion of an allonge or other endorsement for every note transfer is not required under New York law for standing in a foreclosure action when the note has been assigned by other means, such as through a properly drafted assignment of mortgage.
The article’s discussion of Deane is most interesting:
the court found physical possession of the note to be determinative regardless of whether a written assignment was executed. The court criticized the approach followed by case law in New York, stating that allowing an assignee to have standing without possession of the note “would be inconsistent with Revised Article 3, and put New York out-of-step with the 49 states that have adopted the revision[.]” Notably, however, New York has opted not to adopt those proposed revisions to Article 3. The court continued, “that misstep, however, if such it is, has apparently already been taken. The case law quoted and cited above clearly speaks, in the disjunctive, of standing obtained by ‘assignment’ or ‘physical delivery’ of the note[.]”
I will return to Deane in a later post.
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September 18, 2013 | Permalink | No Comments