July 10, 2013
Minnesota U.S. District Court Finds Homeowners’ Complaint Fails Procedurally and Sanctions Counsel for Frivolous Claims
In Blaylock v. Wells Fargo Bank No. 12-693, 2012 WL 2529197, (D. Minn 2012) the court found six individual property mortgage assignments and foreclosures proper, dismissing the quiet title actions on both procedural and substantive grounds. The court also sanctioned the plaintiff’s attorney for his repeated frivolous claims.
On procedural grounds the court dismissed the claim under FRCP 12 finding that the complaint failed to state a “short and plain” statement upon which relief could be granted for each claim and each party.
The court held that independent of procedural grounds for dismissal, the Plaintiffs lacked substantive theories upon which quiet title relief could be granted. The court quickly discounted the claim that mortgages must be perfected claiming that the argument was based upon the same “faulty logic” as the plaintiff’s second “show me the note” claim that in order to foreclose a party must hold both the note and mortgage on a property. “This argument has been rejected by every federal and state court that has considered it under Minnesota law.” Minnesota and Eighth Circuit precedent clearly determined that a mortgagee may commence foreclosure even if the promissory note had been previously transferred to a third party. See Stein v. Chase Home Fin., LLC, 662 F.3d 976, 980 (8th Cir. 2011); Jackson v. Mortg. Elec. Reg Sys., Inc., 770 N.W. 2d 487 (Minn. 2009). These cases are blogged here and here.
The court also found the assignment of the mortgage proper since each of the mortgages expressly permitted assignment. Each assignment in this case granted legal title, the power of sale, and the right to foreclose to the mortgagee and its successors. The Minnesota MERS Statute §507.413 allows nominees to record an assignment to foreclose and district case law also supported a MERS assignment of a mortgage. See Kebasso v. BAC Home Loans Servicing, LP, 813 F. Supp. 2d 1104, 1109 (D. Minn. 2011).
The fact that some of the notes and mortgages for the plaintiffs were held in trust did not allow plaintiffs to challenge the transfer of the note. The court reaffirmed precedent noting that the plaintiffs had no standing to enforce a trust agreement because they were not party to the agreement between the banks. Furthermore, “securitization is standard practice, and Plaintiff’s loans specifically authorize securitization.”
Finally, the court dismissed the plaintiff’s slander of title claim for failure to establish all the elements of a prima facie claim and sanctioned Plaintiff’s counsel, William Butler, in the amount of $75,000 and awarded attorneys’ fees pursuant to FRCP 11 and 28 USC Sec. 1927 because of counsel’s repeated attempts to litigate frivolous slander and “show me the note” claims. Butler used the same theory and motioned for slander claims in multiple prior cases as well as some pending cases.
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July 10, 2013 | Permalink | No Comments
District of Minnesota Rules in Favor of CitiMortgage, Finding Foreclosure and Assignment of Mortgage Proper Despite Alleged Oral Modification of the Mortgage Prior to Assignment
In LaBrant v. MERS 870 F. Supp. 2d 671 (D. Minn. 2012) 0:11-cv-03029-JRT-LIB the court granted CitiMortgage’s motion to dismiss LaBrant’s claim. LaBrant brought action against CitiMortgage to enforce an oral loan modification as a binding agreement and also sought to have the modification enforced under theories of promissory estoppel, misrepresentation, and unjust enrichment.
LaBrant first contracted for a mortgage with Prime Mortgage Corporation who immediately assigned to CitiMortgage. LaBrant never received a written confirmation of a loan modification from CitiMortgage but claims that CitiMortgage assured him that upon filing the correct paperwork a modification would be granted given Mr. LaBrant’s excessive medical expenses. CitiMortgage claimed that they never agreed to a modification. CitiMortgage later assigned to PennyMac Loan Services who foreclosed on the property when LaBrant failed to continue payments. LaBrant unsuccessfully requested postponement of the foreclosure so he could have time to cure his default.
Enforcing an Oral Agreement. The court dismissed LaBrant’s claim that the alleged oral agreement with CitiMortgage for a loan modification should be enforced. Under Minnesota Statute § 513.33 and Minnesota case law an agreement regarding any financial accommodation is a credit agreement that can only be enforced if it is in writing. LaBrant argued that the arrangement was not a credit agreement but rather a modification to an existing credit agreement. The court disagreed finding that a “credit agreement” includes any “agreement by a creditor to take certain actions, such as . . . forbearing from exercising remedies under prior credit agreements.”
Promissory Estoppel. The court determined LaBrant failed to fulfill a prima facie case for estoppel. LaBrant did not establish that CitiMortgage made a clear and definite promise to modify the loan payments nor did LaBrant show that reliance upon CitiMortgage’s promise to modify the loan arrange would entitle LaBrant to stop payments altogether, rather than to simply decrease payments. Furthermore, Minn. Statute §513.33 precludes the claim of promissory estoppel when plaintiffs seek to enforce “an agreement to enter into a new credit agreement” or a modification of such an agreement.
Misrepresentation and Unjust Enrichment. The court ruled that LaBrant failed on his claim of negligent misrepresentation and unjust enrichment. LaBrant only showed that he was provided with false information when he was told that he would receive a loan modification upon submission of his application. There was no further proof of claim that CitiMortgage knew the statements were false at the time they were made or that CitiMortgage directed LaBrant to stop making payments altogether. Establishing an unfulfilled promise is not sufficient to show negligent misrepresentation. The court found that LaBrant failed on his unjust enrichment claim for merely alleging that a party has received a voluntary payment but not showing that such payments were unlawful or why the payments to defendants were not justified.
Violation of Minnesota Statute § 580. LaBrant further claimed that the defendants violated Minnesota Statute § 580 by failing to provide clear notice of the foreclosure and failing to postpone the foreclosure so LaBrant could cure his default. The court also rejected these claims finding that the record before the court clearly established that LaBrant was given notice of foreclosure and the § 580.11 does not impose a general fiduciary duty upon a mortgagee which would require the defendants to honor a request for postponement of foreclosure. The court mentioned that in two prior cases the plaintiff’s attorney made identical arguments which the court rejected in both cases. See Scott v. Wells Fargo Bank, 2011 WL 381766 at 4 (D. Minn. 2011); Cox v. MERS 794 F. Supp. 2nd at 1065 (D. Minn. 2011).
Finally, the court dismissed the LaBrant’s claim for “temporary and permanent injunctive relief” because injunctive relief is only proper as a remedy and not as a separate claim.
The court found in favor of CitiMortgage on all claims.
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July 10, 2013 | Permalink | No Comments
Rhode Island Superior Court Upholds MERS Assignment and Subsequent Foreclosure by Bank
In Cuevas v. The Bank of New York Mellon PC 2010-0553 (R.I. Sup. April 18, 2012), the court found in favor of Bank of New York Mellon in Cuevas’s action to quiet title and for lack of jurisdiction dismissed an appeal from the Sixth Division District Court ordering ejectment of the Cuevas.
In 2005, Cuevas secured a loan with First NLC Financial Services LLC and contemporaneously executed a Mortgage designating MERS as “nominee for Lender and Lender’s successors and assigns . . . borrower understands and agrees . . . MERS has . . . the right to foreclose and sell the property.” Two years later, MERS assigned the mortgage interest to Bank of New York Mellon. After Cuevas was made aware of a default in her mortgage and failed to make the necessary payments, the property entered foreclosure proceedings and Bank of New York purchased the property.
The court only addressed the substance of the quiet title claim. In accordance with established Rhode Island law (See Payette, Kriegel, and Porter blogged here), the court found the foreclosure proper. When the language of the mortgage clearly designates MERS as mortgagee and authorizes MERS to act as the lender’s nominee and enforce the note obligations, MERS is a valid holder of the mortgage with the power to foreclose and assign.
The court also held that the assignment of the mortgage to New York Mellon was proper because the assignment of a mortgage from MERS “does not fatally disconnect the note and mortgage debt.” Rhode Island law is clear that the holder of the note at the time of foreclosure proceedings is irrelevant because the mortgagee acts as the nominee for the current note holder. As a result of the assignment of the mortgage by MERS, Bank of New York Mellon held the Statutory Power of Sale because MERS’s entire interest in the mortgage was assigned.
Furthermore, the court found that as a “stranger” to the transaction, Cuevas had no standing to challenge the assignment. The court granted Bank of New York Mellon’s motion to dismiss and remanded to the District Court for a judgment upholding the foreclosure and assignment.
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July 10, 2013 | Permalink | No Comments
Washington District Court Denies Plaintiff Mortgagors’ Motion for Injunctive Relief Against Foreclosure Sale
In Erickson v. IndyMac Bank, No. C11-598RAJ (W.D. Wash. July 14, 2011), plaintiff mortgagors Gregory Erickson and Aleksandra Makarova filed this action in the United States District Court for the Western District of Washington against defendant mortgagee Indymac Bank for wrongful foreclosure, breach of contract, and unjust enrichment. Defendants filed a motion to dismiss for failure to state a claim and under the doctrine of collateral estoppel.
Plaintiff failed to file its opposition on time, and the court denied its motion for an extension. However, the court went on to note that defendant’s motion to dismiss had merit. The court observed that plaintiff’s “show me the note” complaint had been dismissed in an earlier action for failure to state a claim. The earlier claim, which sought an injunction to stop the foreclosure, was dismissed for plaintiff’s failure to comply with the Washington law providing the basis for mortgagors to obtain an injunction against a foreclosure sale. The court concluded that its earlier order dismissing plaintiff’s claim was dispositive.
The court noted, however, that plaintiff’s request for damages, which had not been included in the earlier complaint, was not barred by the previous litigation and that it may fit within a fraud exception to the Washington law that barred their clam for injunctive relief.
July 9, 2013 | Permalink | No Comments
Ohio Court Grants in Part Securitization Sponsors’ Motions to Dismiss
In Western & Southern Life Ins. Co. v. Residential Funding Co., No. A1105042, slip op. at 15 (Ohio Ct. Common Pleas June 6, 2012), an Ohio state trial court granted in part and denied in part motions to dismiss brought by defendants involved in the securitization and sale of mortgage backed securities. The court granted in part a motion to dismiss based on the statute of limitations and granted a motion to dismiss brought by officers of one of the defendant corporations on the ground that it lacked personal jurisdiction over those individuals. The rest of the motions were denied.
In connection with the purchase of $200 million of mortgage backed securities, plaintiffs Western & Southern Life Insurance Company, Western and Southern Life Assurance Company, Columbus Life Insurance Company, Integrity Life Insurance Company, National Integrity Life Insurance Company, and Fort Washington Investment Advisors brought an action alleging various kinds of fraud against defendants, a group of entities that participated in the securitization and sale of mortgage backed securities. The sponsors of the ten securitization actions in this case include Residential Funding Company, LLC, GMAC Mortgage, and Residential Accredit Loans. The underwriters included UBS Securities, RBS Securities, J.P. Morgan Securities, Deustche Bank, and Citigroup Global Markets.
Plaintiffs alleged that defendants’ fraudulent behavior included misrepresentation about owner occupancy rates, loan origination guidelines, appraisals and loan value ratios, underwriting guidelines, borrowers’ ability to pay, and transfer title issues. This case was before the court following oral argument on motions to dismiss plaintiff’s complaint on several grounds, defendants arguing (1) that the plaintiff’s claims are barred by the statute of limitations; (2) the plaintiffs failed to state a claim for which relief could be granted; (3) that plaintiffs failed to plead that the misrepresented or omitted matters were material; (4) that plaintiffs failed to properly plead reliance; (5) that plaintiffs failed to state the fraud and misrepresentation claims with sufficient particularity; (6) that plaintiffs failed to properly plead civil conspiracy; (7) that plaintiffs failed to adequately plead a claim for negligent misrepresentation; (8) that plaintiff National Integrity’s claims must be dismissed because its purchases occurred in New York, and (9) that the court lack personal jurisdiction over RFC Officers.
The Court granted in part and denied in part defendants’ motion to dismiss on the basis of the statute of limitations. The relevant statute provided that no action “shall be brought more than two years after the plaintiff knew, or had reasons to know, of the facts by reason of which the actions of the person or directors were unlawful, or more than five years from the date of such sale or contract for sale, whichever is shorter.” The court rejected defendants’ claims that plaintiffs had constructive notice more than two years before the complaint was filed because of rising delinquency rates and credit agency downgrades. The Court concluded that there was no “storm of warnings” sufficient to put plaintiffs on notice more than two years before the complaint was filed. However, the court granted defendants’ motion for all of plaintiffs’ claims within the 5 year statute.
The Court denied defendants’ motion to dismiss for failure to state a claim, finding that plaintiffs had pled facts sufficient to state claims for misrepresentation of underwriting guidelines, transfers of title, appraisals and loan to value ratios, credit ratings, and owner occupancy data.
The Court denied defendants’ motions to dismiss for failure to plead materiality of misrepresented material, failure to plead reliance, failure to state fraud with particularity, failure to plead the elements of civil conspiracy, and failure to plead negligent misrepresentation. The Court found that plaintiffs had sufficiently pled all of these elements. The Court also denied defendants’ motion to dismiss National Integrity’s claims.
With regard to defendants’ jurisdictional claim, the court found that although Ohio’s long arm statute extended jurisdiction to the officer defendants, such jurisdiction would not meet the requirements of due process with regard to the RFC officers.
July 9, 2013 | Permalink | No Comments
Assignment Ball and Chain
By David Reiss
An undated Nationwide Title Clearing, Inc. “White Paper” (actually, more of an advertorial), Understanding Current Assignment Verification Practices, is making the rounds of the blogosphere. It opens,
The scrutiny of the completeness of collateral review and valid assignment chains has hit the mortgage industry hard, primarily because the industry went from a securitization process that didn’t require assignments to be recorded to a heavily scrutinized process requiring complete chains to be recorded at the county. This has made compliance extremely difficult for many lenders and others, especially because the industry went for so many years without this level of scrutiny. (1)
I’ll say!
This widespread lack of assignments could have negative consequences under the REMIC Rules. This is particularly a concern if it undercuts claims by purported REMICs that they acquired mortgages within the time required by statute.
I also found this passage intriguing:
just because a loan is supposed to be in MERS doesn’t always mean it is. We’ve found many examples of loans never having been assigned to MERS on land record, as well as loans that have been assigned multiple times out of MERS by prior investors/servicers, I would assume due to a poor review and preparation process . . ..(4-5)
I am not sure how courts would unwind such transactions. But I am sure we will find out . . ..
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July 10, 2013 | Permalink | No Comments