July 10, 2013
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
July 8, 2013
State of the Nation’s Housing 2013: Build It and They Will Come
The Joint Center for Housing Studies of Harvard University released The State of the Nation’s Housing 2013. As always there is much of interest in this annual report. I was particularly intrigued by Figure 21 on page 20, “The Government Continues to Have an Outsized Footprint in the Mortgage Market.” The report states
Despite efforts to entice private capital into the mortgage market, the GSEs and FHA continue to back the vast majority of loans(Figure 21). In 2001, loans securitized into private-label securities or held in bank portfolios accounted for nearly half of loan originations. Their market share rose to about two-thirds at the height of the housing boom before retreating to the low single-digits. Beginning in 2009, government-backed loans have accounted for roughly 90 percent of all originations. While the private securities market was still moribund in 2012, portfolio lending by banks showed its first substantial increase in years (albeit to a modest level), bringing the government share down slightly. (20-21)
As Fannie and Freddie return to profitability, policymakers are acting as if only the government can provide credit to the residential mortgage market, but from Figure 21 we can see that over a relatively short time period, capital can meaningfully shift from the secondary market (private MBS) to the government (FHA, Fannie and Freddie) to the primary market (portfolio lenders). Instead of assuming that the present structure is the best of all possible worlds, we should design the system we want and incentivize capital to find it.
Build it and they will come.
July 8, 2013 | Permalink | No Comments
Massachusetts District Court Dismisses Homeowner-Plaintiff’s Claim of Alleged Inadequacies in Foreclosure and Assignment of His Mortgage
In Butler v. Deutsche Bank Trust Co. Americas, 2012 WL 3518560 (D Mass 2012), the court dealt with alleged inadequacies in the assignment and foreclosure of a mortgage. The plaintiff and mortgagor, Frank Butler, claimed that the defendant [Deutsche Bank] had wrongfully foreclosed on two separate occasions, slandered the property’s title, and violated G.L. c. 93A. Deutsche Bank moved to dismiss the complaint on the theory that the alleged inadequacies were not based on actionable legal theories that support the plaintiff’s claims. The court granted the bank’s motion to dismiss.
The plaintiff offered a number of theories to support his claim as to the invalidity of one or both of the foreclosure actions. First, he contended that the foreclosure actions were invalid because the bank did not hold the note secured by the mortgage and the mortgage assignments were not made in compliance with the Pooling and Servicing Agreement.
Next, the plaintiff contended that the foreclosure auctions were invalid because the assignments from MERS were invalid and a robo-signer was used. Lastly, he contended that the foreclosure auctions were invalid as the assignment was made without identifying the relevant trust.
After review of the plaintiff’s contentions, the court found that they all lacked merit. The court relied on case law that dealt directly with all of the plaintiff’s contentions. Because none of the plaintiff’s theories as to the invalidity of either the assignment or the foreclosure was actionable, the court granted the defendant’s motion to dismiss.
July 8, 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