June 13, 2013
Shaky South Carolina Opinion Finds That Bank Owned Note in Foreclosure Action
The South Carolina Court of Appeals held in Bank of America v. Draper et al., no. 5140 (June 5, 2013) that Bank of America had standing in a foreclosure action and had proved that it owned the mortgage note. The Court stated that under South Carolina law, a mortgagee who has the note and the mortgage can elect to bring an action on either. The Court also stated that under South Carolina law, the servicer has standing to bring an action on behalf of the beneficial owner. Because Draper admitted that Bank of America was the servicer, the Court held that Bank of America had standing in this foreclosure action.
Draper also argued that Bank of America failed to prove that it was the owner or holder of the mortgage note. Relying on South Carolina UCC section 301, the Court found that the bank was a “person entitled to enforce.” (8) The Court reached this result because Draper did not contest the Bank’s evidence that it owned the note through a series of “transfer and mergers.” (8) The bank considered as relevant evidence of the Bank’s ownership a “ledger of payments” that showed “all transactions on the account.” (8)
One does not have a sense that this case was well briefed because the Court seems to take a lot of shortcuts. For instance, the Court apparently assumed that the mortgage note was negotiable and thus subject to Article 3 of the UCC. There is a fair amount of controversy relating to this assumption, something that I will blog about soon.
(HT April Charney)
June 13, 2013 | Permalink | No Comments
The Potentially Far Reaching Affects of The Ibanez Holding on Foreclosure Proceedings
The holding in U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011) potentially may have far reaching affects on foreclosure litigation outcomes across the nation.
Although a state case, Ibanez has national implications for several reasons; the Massachusetts Supreme Court is one of the most respected state supreme courts in the country, a majority of states have laws similar to Massachusetts, and the questions in the case stemming from irregularities in the residential securitized mortgage industry are wide spread.
In Ibanez the Massachusetts Supreme Court was faced with the issue of the validity of foreclosures when the mortgages are part of securitized mortgage lending pools. It is typical practice for mortgages to be bundled and dealt to Wall Street investors. The ownership of mortgage loans are then divided and transferred numerous times with little to no restrictions. However, the mortgage loan transfers’ recordation and documentation often times lag far behind.
The mortgage assignment in the case of Ibanez was executed “in blank” and was not actually recorded until over a year after the foreclosure process had begun. The court’s major problem with the banks was that they did not possess – and could not establish evidence of – a legally effective mortgage assignment showing that they actually held the mortgage. The banks did not posses the mortgage note, thus they lacked standing to sue. Additionally, the banks put the endorsement in blank, without naming the entity to which they were assigning the mortgage. This was a violation of Massachusetts’s law.
Accordingly, the court found that the plaintiff banks – who were not the original mortgagees – failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result their requests for a declaration of clear title were denied.
The court explicitly held that there must be evidence of a valid assignment of the mortgage at the time the foreclosure process commences. However, the court did not specify exactly what type of evidence would suffice to establish what evidence satisfies this requirement.This holding, if applied in its broadest sense, has the potential to ban most securitized mortgages in the country from being foreclosed upon.
June 13, 2013 | Permalink | No Comments
Massachusetts Supreme Court Affirms Lower Court’s Judgment in Favor of Plaintiff Who Claimed the Bank Pursuing Foreclosure on His Property, Lacked Legal Standing to Do So
In U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011), the Massachusetts Supreme Court affirmed a lower court’s ruling in favor of a plaintiff who alleged that the bank pursuing foreclosure on his property had no legal standing to do so.
The Supreme Court held that; the first purchaser failed to show it was the mortgage holder at time of foreclosure, the second purchaser failed to show it was the mortgage holder at time of foreclosure, the holding of note was insufficient to show authority to foreclose, post foreclosure sale assignments were insufficient to show authority, and the ruling did not warrant prospective application.
In reviewing the lower court’s ruling, the Massachusetts Supreme Court found that the lower court judge did not err in concluding that the securitization documents submitted by the plaintiffs failed to demonstrate that they were the holders of the Ibanez and LaRace mortgages, respectively, at the time of the publication of the notices and the sales. The judge, therefore, did not err in rendering judgments against the plaintiffs and in denying the plaintiffs’ motions to vacate the judgments
On appeal, the plaintiff raised three other arguments. First, the plaintiffs initially contended that the assignments in blank, identifying the assignor but not the assignee, not only “evidence and confirm the assignments that occurred by virtue of the securitization agreements,” but “are effective assignments in their own right.” But in their reply briefs they conceded that the assignments in blank did not constitute a lawful assignment of the mortgages.
The court noted that their concession was appropriate, citing the long-standing principle that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; thus the court did not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment.
Second, the plaintiffs contended that, because they held the mortgage note, they had a sufficient financial interest in the mortgage to allow them to foreclose. However, the court found that under Massachusetts’s law, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage.
Third, the plaintiffs argued that post-sale assignments were sufficient to establish their authority to foreclose when taken in conjunction with the evidence of a presale assignment. However, the court disagreed, finding that where an assignment is confirmatory of an earlier, valid assignment made prior to the publication of notice and execution of the sale, that confirmatory assignment may be executed and recorded after the foreclosure, and doing so will not make the title defective.
June 13, 2013 | Permalink | No Comments
June 12, 2013
Don’t Show Me The Note in Georgia!
The Georgia Supreme Court recently decided You v. JP Morgan Chase, No. S13Q0040 (May 20, 2013) which held that the “law does not require a party seeking to exercise a power of sale in a deed to secured a debt [a deed of trust] to hold, in addition to to the deed, the promissory note evidencing the underlying debt.” (1) The Georgia Supreme Court thus joins the Arizona Supreme Court which reached the same result in Hogan v. Wash. Mut. Bank, 277 P.3d 781 (Ariz. 2012). I discuss Hogan and cases reaching the opposite result in Show Me The Note!
The Georgia Supreme Court reached this result after reviewing the history of non-judicial foreclosure in Georgia. It found nothing in recent statutory enactments that was inconsistent with the longstanding practice of allowing foreclosure on the mortgage alone. The Court dismissed a number of arguments, including the contention that the UCC “prohibits a party who does not hold the note from exercising the power of sale in the deed securing the note.” (12) The Court notes that Chase is just seeking to enforce the deed of trust, not the note. The Court also acknowledges that it might be more sensible not to split the note from the mortgage, but it also notes that the Georgia legislature did not take that approach.
The court concludes the opinion with something of a cri de coeur, the type of statement one sees from a court that feels that its conscience is being constrained by binding authority:
As members of this State’s judicial branch, it is our duty to interpret the laws as they are written. See Allen v. Wright, 282 Ga. 9(1), 644 S.E.2d 814 (2007). This Court is not blind to the plight of distressed borrowers, many of whom have suffered devastating losses brought on by the burst of the housing bubble and ensuing recession. While we respect our legislature’s effort to assist distressed homeowners by amending the non-judicial foreclosure statute in 2008, the continued ease with which foreclosures may proceed in this State gives us pause, in light of the grave consequences foreclosures pose for individuals, families, neighborhoods, and society in general. Our concerns in this regard, however, do not entitle us to overstep our judicial role, and thus we leave to the members of our legislature, if they are so inclined, the task of undertaking additional reform.
(HT William Hart)
June 12, 2013 | Permalink | No Comments
Ohio Bankruptcy Court Rules in Favor of Wells Fargo: Failure to Properly Record Mortgage Assignment Does Not Invalidate Mortgage
In In re Williams, 395 B.R. 33 (Bankr. S.D. Ohio 2008), the Ohio Bankruptcy Court granted the defendant, Wells Fargo Bank, N.A.’s motion to dismiss the Plaintiff’s complaint, holding that mortgage assignments must be recorded under Ohio law, but that failure to do so does not terminate the underlying mortgage. Additionally, the Trustee could not be a bona fide purchaser and avoid the mortgage since he possessed constructive knowledge of this mortgage.
On May 2, 2005, Earl and Belinda Williams (the Debtors) executed a promissory note in the amount of $137,730 to United Wholesale Mortgage (UWM), secured by Debtors real property, and named MERS as a “nominee for UWM, its successors and assigns.” In November 2007, the Debtors filed a petition for relief under Chapter 7 of Title 11, under the US Bankruptcy Code. Plaintiff Thomas Nolan was appointed Chapter 7 Trustee. In February 2008, Mortgage Electronic Registration Systems, Inc. (MERS) filed a motion for relief from the automatic stay on the Property, and subsequently the Trustee initiated an adversarial proceeding to avoid the mortgage lien filed in the name of MERS and alleged that under Ohio law, the assignment of the mortgage must be recorded on behalf of the holder of the note.
The plaintiff brought suit on two accounts. First, under the Trustee’s strong arm powers granted by the Bankruptcy Code § 544, he alleged that “as a bona fide purchaser for value, he may avoid the mortgage held by Wells Fargo on account of the failure to record an assignment of the Mortgage.” The court elucidates that the Bankruptcy Code gives the Trustee power of a bona fide purchase for value if a hypothetical purchaser could have obtained that bona fide status. Under Ohio law, the assignment of a mortgage must be “recorded to protect those lien interests from avoidance by a bona fide purchaser of real property.” The parties disagree whether mortgages must be recorded under the terms of the Bankruptcy Code, and the Court ultimately determined that the Bankruptcy Code did include mortgages under the requirement to record “instruments of writing properly executed for the conveyance or unencumbrance of lands. . . . ” but that the failure to record the assignment of the mortgage did not terminate “the underlying mortgage and the lien of the underlying mortgage.” Since the Trustee had constructive knowledge of the mortgage, he could not then avoid and acquire bona fide purchaser status due to Wells Fargo’s failure to record its assignment. The Court then dismissed the first cause of action.
Second, the Trustee argued for the Disallowance of Wells Fargo’s claim on based his ability to avoid the mortgage (as argued above). The Trustee’s claim falls under § 502(b) of the Bankruptcy Code, which establishes “grounds upon which a claim that has been objected to by a party in interest may be disallowed.” The Court relied upon subsection 1 which permits disallowance of a claim that is “unenforceable against the debtor or property of the debtor.” The claim was then dismissed “without prejudice to the Trustee’s ability to object under Code § 502 and the Bankruptcy Rules of Procedure to any proof of claim filed by Wells Fargo or any other party claiming to be a creditor of the Debtors in connection with the Note on grounds not determined through this adversary proceeding.”
June 12, 2013 | Permalink | No Comments
June 11, 2013
Show Me The Note!
KeAupuni Akina, Brad Borden and I have posted Show Me The Note! to SSRN and BePress. The abstract reads
News outlets and foreclosure defense blogs have focused attention on the defense commonly referred to as “show me the note.” This defense seeks to forestall or prevent foreclosure by requiring the foreclosing party to produce the mortgage and the associated promissory note as proof of its right to initiate foreclosure.
The defense arose in two recent state supreme-court cases and is also being raised in lower courts throughout the country. It is not only important to individuals facing foreclosure but also for the mortgage industry and investors in mortgage-backed securities. In the aggregate, the body of law that develops as a result of the foreclosure epidemic will probably shape mortgage law for a long time to come. Courts across the country seemingly interpret the validity of the “show me the note” defense incongruously. Indeed, states appear to be divided on its application. However, an analysis of the situations in which this defense is raised provides a framework that can help consumers and the mortgage industry to better predict how individual states will rule on this issue and can help courts as they continue to grapple with this matter.
June 11, 2013 | Permalink | No Comments
June 14, 2013
Massachusetts District Court Limits Massachusetts Supreme Court’s Broad Holding From Ibanez By Limiting Challenges to Assignments
By Ebube Okoli
In Aliberti v. GMAC Mortgage, LLC, 779 F.Supp.2d 242 (D.Mass.2011), the plaintiff homeowner relied on the seemingly broad-reaching holding handed down by the Massachusetts Supreme Court in U.S. Bank National Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011). On facts similar to Ibanez the plaintiff challenged the assignment from MERS to GMAC, thus challenging GMAC’s ability to foreclose.
The Supreme Court in Ibanez stated “any effort to foreclose by a party lacking jurisdiction and authority to carry out a foreclosure under Massachusetts law is void.“ Then adopted case law stating that attempts to foreclose on a mortgage by a party that “had not yet assigned the mortgage results in a structural defect that goes to the very heart of the defendant’s ability to foreclose and renders foreclosure sale void.”
This holding left the question still open as to whether mortgagors have a legally protected interest in assignments to which they are not a party. The district court read the holding from Ibanez as not providing an independent basis for mortgagors to collaterally contest previously executed mortgage assignments to which they are not a party. Further, the holding granted neither an interest nor rights to the third party.
The court noted that in Ibanez, the land court was specifically tasked with evaluating the sufficiency of the assignment process, and the banks, as foreclosing parties and actual parties to the mortgage assignment, had standing to seek court review of the validity of the assignment process.
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June 14, 2013 | Permalink | No Comments