August 27, 2013
Whither The Housing Trust Fund?
As part of my review of the litigation surrounding the newly-profitable Fannie And Freddie (here, here, here and here), I turn to the complaint filed by “extremely low income tenants in desperate need of affordable housing” and the National Low Income Housing Coalition and the Right to the City Alliance, Samuels et al. v. FHFA et al., No. 1:13-cv-22399 (Jul. 9, 2009).
As the complaint notes, Congress created the Housing Trust Fund as part of the Housing and Economic Recovery Act of 2008 (HERA). The Housing Trust Fund was to be funded by contributions by Fannie and Freddie that were based on their annual purchases. Those contributions could amount to hundreds of millions of dollars a year.
But here was the rub: the Director of the FHFA could suspend those contributions if the Director finds that they
(1) are contributing, or would contribute, to the financial instability of [Fannie or Freddie];
(2) are causing, or would cause, the [Fannie or Freddie] to be classified as undercapitalized; or
(3) are preventing, or would prevent, [Fannie or Freddie] from successfully completing a capital restoration plan under section 4622 of this title. (14, quoting 12 U.S.C. section 4567(b))
And that is just what happened in 2008: the FHFA put them into conservatorship because of fears of their impending insolvency and their mounting losses. With the housing recovery, Fannie and Freddie have returned to profitability — massive profitability. But the federal government has redirected those profits to the Treasury, which had provided many billions of dollars to the two companies during the early years of the crisis without funding the Housing Trust Fund.
The plaintiffs allege that despite “the record profits of the Enterprises and despite the statutory requirement that any suspension of payments be temporary, the Federal Defendants have failed and refused to review these findings and/or discontinue their suspension of the statutorily required payments by Fannie Mae and Freddie Mac into the Housing Trust Fund.” (17) The plaintiffs allege that this is “arbitrary and capricious in light of the changed and current financial condition of the Enterprise. The required statutory contribution is a small percentage of the Enterprise’s profits and thus would not contribute to the financial instability” of the two companies or to the other two bases for suspending the contributions pursuant to section 4567(b). (18, citations omitted) In sum, “the level of capitalization is solely a function of the policy decisions of the conservator not the cost of contributions to the Housing Trust Fund.” (22)
The big challenge that the plaintiffs face, as far as I can tell, is how they can convince the Court that the two companies are financially stable when they are still so deeply in debt to the federal government, notwithstanding the billions of dollars of profits that they two companies have remitted so far to the Treasury.
August 27, 2013 | Permalink | No Comments
Court of Civil Appeals of Alabama, in Favor of Borrower, Vacates and Dismisses Judgment
The court in Nelson v. Federal National Mortgage Association, 97 So.3d 770 (2012) the Court granted Fannie Mae’s summary judgment as to its ejectment action against the borrower because the Court found that Fannie Mae received valid title to the property from MERS subsequent to the foreclosure sale conducted by MERS. However, on appeal, court of civil appeals of Alabama vacated the lower court’s judgment and dismissed the appeal.
The court of civil appeals reversed a decision by the lower court holding that under the state’s law MERS had the power and authority to conduct the foreclosure sale in its own name and the special warranty deed from MERS to Fannie Mae was valid and gave Fannie Mae superior legal title to the property. On appeal this was reversed.
Likewise, the lower court also originally held that an assignment of mortgage from MERS to the servicer was unnecessary for MERS to proceed with the foreclosure on behalf of the servicer. Accordingly the court of civil appeals also vacated this.
August 27, 2013 | Permalink | No Comments
Alabama Court Rules That Demonstration of Note Ownership is Not Needed
The court in Farkas v. SunTrust Mortgage, Inc, et al., 447 F. App’x 972 (11th Cir. 2011) found that Alabama is a non-judicial foreclosure state and that the party seeking foreclosure was not required to demonstrate ownership of the promissory note before taking action on the corresponding mortgage. This action involved MERS as the foreclosing mortgagee.
The debtor claimed that Article 3 of the Uniform Commercial Code (UCC) required that the party seeking foreclosure had to prove an interest in the note. However, the court reasoned that the UCC was not relevant to non-judicial foreclosure proceedings.
August 27, 2013 | Permalink | No Comments
August 26, 2013
Hawaiin Court Rejects Plaintiff’s Allegations of Fraud Against MERS and Grants Summary Judgement
The court in Sakugawa v. MERS et al, D. Hawaii, 1:10-cv-00028 (Feb. 25, 2011) granted summary judgment in favor of MERS. Thus rejecting the plaintiff’s accusations for fraud and claims of state law violations regarding loan origination.
The court also found that MERS was not involved in the loan origination process and was not in contact with the plaintiff regarding the transaction. Thus the court found that there was no basis to find that MERS committed any fraudulent, unfair or deceptive acts regarding the loan consummation.
The Court found that MERS was the correct mortgagee under the security instrument, thus the mortgage permitted MERS to foreclose and sell the property.
August 26, 2013 | Permalink | No Comments
Don’t Abandon Hope
According to Dante, Hell’s entrance has a sign that reads, “Abandon all hope, ye who enter here.
I was quoted in a story in Joliet, Illinois’ Herald-Sun, Joliet Grapples with Empty Building Syndrome, that reads in part:
David Reiss, a law professor who teaches community development, property and real estate courses at Brooklyn Law School in New York, agrees. He has written about and studied empty residential spaces, but he’s also watched firsthand how New York state got aggressive about empty residential buildings in the 1980s by acquiring them and selling them to private or nonprofit developers.
“It just paid off in spades,” he said.
Reiss said demolishing empty buildings that can’t be used is better than having “derelict, hulking structures in the middle of the community,” he said. “Better to have open space than crumbling structures. You don’t want these ghosts or boogeymen to haunt a community.”
It doesn’t make sense to throw money into something that won’t pay off, he said.
“So I certainly think a community led by its mayor and city council really wants to have an intelligent plan,” he said. “It’s important to have momentum.”
The worst thing to do is to ignore the problem or not see it, he warned.
“You really need the civil leaders to believe in the community and plan for its rebirth,” he said. “If you don’t have that, you’re kind of on a life raft at sea.”
August 26, 2013 | Permalink | No Comments
August 25, 2013
Pennsylvania Appellate Court Affirms MERS’ Standing to Foreclose
The Pennsylvania appellate court in MERS v. Estate of Harriet L. Watson, et al., Superior Court of Pennsylvania # 637 WDA (2006), affirmed the standing of MERS to foreclose.
The case involved counter-claims as well as affirmative defenses filed by the estate of a deceased borrower in response to a foreclosure suit brought by MERS in 2003. The estate’s defenses and counter-claims included the theory that MERS, in someway, lacked standing because it was not the “real party-in-interest.” Moreover, MERS could not bring a foreclosure suit in Pennsylvania since it did not register as a foreign corporation doing business in Pennsylvania.
After consideration of the estate’s claims, the appellate court disregarded the estate’s challenges to MERS standing to foreclose due to the clear language of the mortgage itself. The court then held that MERS was not required to register as a foreign corporation because the act of acquiring, recording, or enforcing a mortgage lien constituted a specific exception under 15 Pa.C.S.A. § 4122 to the general requirement that companies “doing business” in Pennsylvania must obtain a certificate of authority in order to file suit in Pennsylvania. Such actions, by statutory definition, do not constitute “doing business.”
August 25, 2013 | Permalink | No Comments
Illinois Federal Appellate Court Rules That MERS Had Sufficient Authority to Commence Foreclosure Proceeding in its Capacity as an Agent
The federal appellate court in MERS v. Estrella, 390 F.3d 522 [7th Cir. 2004] ruled that MERS had a sufficient authority to commence a foreclosure proceeding, in its capacity as an agent on behalf of its principal.
At issue in this case was an application to confirm a sale. On appeal, the court dismissed the appeal based upon well-established law that Court orders denying confirmation to judicial sales are not final decisions, and thus are not appealable.
Additionally, implicit in the court’s holding was recognition that MERS has standing to commence a foreclosure proceeding as agent on behalf of its principal. Indeed, the Estrella Court did not dismiss the proceeding in its entirety for lack of standing by the agent, rather cited to Indiana Gas Co. v. Home Insurance Co., 141 F.3d 314, 319 [7th Cir. 1998] which recognized the capacity of an agent to commence a proceeding “[w]hen the principal’s interests are affected by the litigation, the principal’s citizenship counts even if the agent is the sole litigant.”
The federal appellate court did not issue a blanket ban to suits commenced by MERS as an agent on behalf of its principals. Instead, in suits brought by agents, it directs federal district courts to ascertain the citizenship of the principal of the plaintiff to determine whether federal diversity jurisdiction exists.
August 25, 2013 | Permalink | No Comments
