September 21, 2013
Court Rules That When MERS Assigned its Interest, it Did Not Commit Negligence Against the Borrower
The United States District Court of the Eastern District of California in deciding Baisa v. Indymac, MERS, et al, No. Civ. 2:09-1464 (E.D. Cal. 2009), found that MERS had the right to execute an assignment of the deed of trust and was not a debt collector for the purposes of California’s Rosenthal Act. The act of assigning a deed of trust did not constitute debt collection.
Plaintiff’s first cause of action alleged that MERS and other defendants violated the Rosenthal Fair Debt Collection Practices Act (“RFDCPA” or “Rosenthal Act”), 1 Cal. Civ. Code §§ 1788 et seq. (SAC 9.). However the court found that plaintiffs failed to plead facts necessary to support the inference that MERS is a “debt collector” under the RFDCPA; specifically, that MERS engages in “debt collection,” that the deed of trust memorializes a “consumer credit transaction,” and that the amount owed under the deed of trust is a “consumer debt” according to the RFDCPA
Furthermore, the court found that when MERS assigned its interest, it did not commit negligence against the borrower nor make a misrepresentation or fraudulent claim to the borrower.
September 21, 2013 | Permalink | No Comments
Court Rules That MERS, as the Beneficiary on the Deed of Trust, Had the Authority to Make a Substitution of Trustee
The United States District Court of the Northern District of California in deciding Lomboy v. SCME Mortgage Bankers, Inc. et al, No. C-09-1160 SC (N.D. Cal. 2009) held that under California law, MERS was not required to register to do business in California. The court also ruled that MERS is able to foreclose.
As her first cause of action, Plaintiff sought declaratory relief against SCME, MERS, Quality, and Aurora. Plaintiff asserted that she was the true equitable owner of the house, that the defendants were not holders of the promissory note, which should accompany the deed of trust, and that MERS has no right to foreclose on the house.
Plaintiff Imelda Lomboy also brought an action alleging various improprieties surrounding the then-imminent foreclosure of property that was used as security for a loan. Plaintiff alleges that the defendants “fraudulently obtained the deed of trust.”
The court in rejecting the plaintiff’s contentions note that MERS, as the beneficiary on the deed of trust, had the authority to make a substitution of trustee. The court further noted, that the substitute trustee appointed by MERS was able to carry out the foreclosure.
September 21, 2013 | Permalink | No Comments
September 20, 2013
American Dream/American Nightmare
I will be presenting “How Low Is Too Low? The Federal Housing Administration and the Low Down Payment Mortgage” at the 2013 Meeting of the Canadian Law and Economics Association next week in Toronto. I just came back from an interesting conference at the Cleveland Fed where I was on a panel devoted to the FHA. The other two panelists presented some disturbing findings about default rates for FHA mortgages.
The two panelists were
Edward J. Pinto, Resident Fellow, American Enterprise Institute, How the FHA Hurts Working-Class Families
Joseph Tracy, Executive Vice President and Senior Advisor to the President, Federal Reserve Bank of New York, Interpreting the Recent Developments in Housing Markets
Pinto’s summary is as follows:
The Federal Housing Administration’s mission is to be a targeted provider of mortgage credit for low- and moderate-income Americans and first-time home buyers, leading to homeownership success and neighborhood stability. But is the FHA achieving this mission? This paper reports on a comprehensive study that shows the FHA is engaging in practices resulting in a high proportion of low- and moderate-income families losing their homes. Based on an analysis of the FHA’s FY 2009 and 2010 books of business, the FHA’s lending practices are inconsistent with its mission. The findings indicate: An estimated 40 percent of the FHA’s business consists of loans with either one or two subprime attributes—a FICO score below 660 or a debt ratio greater than or equal to 50 percent (based on loans insured during FY 2012). The FHA’s underwriting policies encourage low- and moderate-income families with low credit scores or high debt burdens to make risky financing decisions—combining a low credit score and/or a high debt ratio with a 30-year loan term and a low down payment. A substantial portion of these loans has an expected failure rate exceeding 10 percent. Across the country, 9,000 zip codes with a median family income below the metro area median have projected foreclosure rates equal to or greater than 10 percent. These zips have an average projected foreclosure rate of 15 percent and account for 44 percent of all FHA loans in the low- and moderate-income zips.
Tracy reported that rates of defaults by households rather than by mortgages gave a truer picture of the FHA’s success because many FHA borrowers would refinance into another FHA loan. Thus, to study defaults by mortgages covers up the real rate of default.
I believe that their studies were preliminary and have not gone through peer review, but both of them reported extraordinary default rates for certain types of FHA mortgages.
Pinto and his empirical work are very controversial so I cannot endorse his findings. But I can say that if he got it only somewhat right about predictable and ridiculously high default rates for some categories of borrowers, the FHA must immediately defend the underwriting of such loans or change its practices. It would be criminal to have predictable default rates in excess of 20% for any population. Such a rate transforms the American Dream of homeownership into an American Nightmare of foreclosure far, far too often.
September 20, 2013 | Permalink | No Comments
Northern District of California Rules That MERS Had the Authority to Appoint a Substitute Trustee
The United States District of the Northern District of California dismissed fraud claims brought by plaintiff against MERS in Labra v. Cal-Western Reconveyance Corp., No. C 09-02537 PJH (C.D. Cal. 2010). The court also denied the plaintiff’s request for injunctive relief.
The Northern District of California court affirmed the lower court’s ruling that MERS had the authority to appoint a substitute trustee after finding that the deeds of trust explicitly stated that MERS was the nominal beneficiary under the deeds of trust. Further, it also provided that MERS had the right to foreclose and sell the property as well as take any action that a lender could take.
September 20, 2013 | Permalink | No Comments
California Court Finds That Under State Civil Code Section 2924(a), MERS Had the Right to Foreclose
The United States District Court for the Northern District of California Oakland Division in deciding Earl A. Dancy v. Aurora Loan Services, LLC, No: C10-2602 SBA (2010) found that the plaintiff’s contentions lacked merit.
The court found that the plaintiff’s assertion that neither the loan servicer nor MERS were the true beneficiaries of the subject deed of trust and therefore had no authority to institute foreclosure proceedings, lacked merit. The court held that the deed of trust expressly designated that MERS was acting solely as nominee for the lender and the lender’s successors and assigns.
Further, the court held that regardless of whether or not MERS owned the note or was entitled to any payments as a result, the fact remained that the deed of trust designated MERS as a beneficiary. Thus, under section 2924(a) of the California Civil Code, MERS had the right to foreclose.
September 20, 2013 | Permalink | No Comments
The United States District Court for the Eastern District of California Finds That MERS Was the Beneficiary and Did Not Breach Duty of Care
The United States District Court for the Eastern District of California in deciding Knowledge Hardy v. IndyMac Federal Bank, et al, No. CV F 09-935 (E.D. Cal. 2009) found that MERS was the beneficiary and did not breach a duty of care.
The court found that MERS did not breach duty of care owed to the borrower by acting as the beneficiary and assigning the deed of trust to IndyMac. The court found that MERS participation in the foreclosure failed to amount to a violation of the covenant of good faith and fair dealing.
September 20, 2013 | Permalink | No Comments
September 19, 2013
Court Holds That California State Law Did Not Require Possession of the Note to Commence a Non-Judicial Foreclosure
The court in Chilton v. Federal National Mortgage Association, No. 1:09-cv-02187-OWW-SKO (2010), held that California state law did not necessitate possession of the promissory note in order to proceed with a non-judicial foreclosure.
The court dismissed the plaintiff’s complaint, after hearing the plaintiff’s arguments alleging wrongful foreclosure and lack of standing. Even though MERS was not named as a party to the action, the plaintiff argued that based on recent Kansas case law, MERS did not have standing to foreclose since the note and deed of trust had been separated.
The court distinguished Kansas’s recent precedent from this case in that the court held that Kansas’s case law did not consider the requirements of California’s non-judicial foreclosure process.
September 19, 2013 | Permalink | No Comments
