June 11, 2013
Oregon District Court Dismisses Borrower’s Suit to Invalidate Foreclosure in Favor of BOA and MERS, Stating Lack of Merit
In Moreno v. Bank of America., N.A., 3:11-CV-1265-HZ, (D. Or. Apr. 27, 2012) the U.S. District Court of Oregon, granted the defendant’s motion to dismiss for failure to state a claim. Plaintiff had alleged violations under several federal and state Acts, each of which the Judge rejected based on lack of merit.
The plaintiff brought action to invalidate a foreclosure sale, which, although dated earlier than the filed complaint, had not yet occurred. On March 29th, 2007, Moreno borrowed $220,000 from Aegis Wholesale Corporation. A promissory note in favor of Aegis was secured by a Deed of Trust (DOT) against the plaintiff’s real property and identified Fidelity National Title Insurance Company of Oregon (Fidelity) as trustee, and Mortgage Electronic Registration Systems, Inc. (MERS) as the “beneficiary under this Security Instrument.” MERS later assigned the DOT to BAC Home Loans Servicing (BACHLS) in June of 2010. On the same day, BACHLS appointed ReconTrust Co. as successor trustee to Fidelity. Fidelity filed a Notice of Default and Election to Sell (NODES), initiating foreclosure proceedings against Moreno, who had been in default since July, 2009.
The Court dismissed each of the plaintiff’s complaints in turn, starting with his first two claims of relief based on violations of the Oregon Trust Deed Act (OTDA). The plaintiff claimed that under the DOT, MERS lacked authority to assign beneficial interests to BACHLS, who in turn, lacked power to appoint ReconTrust as successor trustee. The Judge, Marco A. Hernandez, stated that he had previously held that “naming MERS as a beneficiary in a DOT does not violate the OTDA,” and while other judges in the district have found otherwise, he would continue to uphold this ruling. The plaintiff alleged that a 3-year gap between the execution of the DOT and MERS’s assignment to BACHLS showed there “must have” been unrecorded assignments (in violation of ORS 86.735(1)). The Court found that allegation was both speculative and based on an erroneous assertion of fact (the Complaint mistakenly names Bank of America as the original lender, whereas the DOT names Aegis, and subsequent documents state Bank of America was assigned interest only in 2010). The second OTDA based claim was that the defective notice was invalid for failure to include a correct statement of the amount in default. The Court dismissed it because the plaintiff had not “plead his ability to cure the default, that his damages resulted from the lost opportunity to cure the default, and that he requested information from the trustee under O.R.S. § 86.757 and O.R.S. § 86.759.”
Next, the Court dismissed the plaintiff’s claim brought under the Truth in Lending Act (TILA) for both the failure to meet the 1-year statute of limitations and for having incorrectly brought the action against Bank of America rather than Aegis, the original lender. Under TILA a claim may only be brought against the Creditor, who is the person who “regularly extends… consumer credit” and “to whom the debt arising from the consumer credit transaction is initially payable.” 15 U.S.C. Sect. 1602(g). The plaintiff further argued that he is Hispanic and “as a result” did not understand the nature of the loan documents. He therefore requested equitable tolling, which suspends the “limitation period until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosure that form the basis of the TILA action,” which he stated was in 2011 after having spoken to a translator who explained his loan audit. The Court found this unconvincing on several accounts. First, since the complaint brought no allegations in support of equitable tolling, it failed to state a TILA violation. Second, the plaintiff never alleged he did not speak English. Third, equitable tolling is applied when the 1-year period would be “unjust” or “frustrate the purpose” of the TILA. Fourth, the plaintiff must bring allegations “that the defendant had fraudulently concealed information that would have allowed plaintiff to discover his claim,” engaged in action to prevent plaintiff from discovering a claim, or encountered “some other extraordinary circumstance would have made it reasonable for Plaintiff not to discover his claim within the limitations period.” Garcia v Wachovia Mortg. Corp. 676 F. Supp.2d 895, 905 (C.D. Cal. 2009).
The Court dismissed the plaintiff’s claim under the Real Estate Settlement Procedures Act (RESPA) for failure to meet the statute of limitations since his claim arose out of the origination of the loan in 2007, and his arguments for equitable tolling “are unavailing.” Plaintiff also failed to allege that a RESPA violation resulted in actual damage, a requirement of a RESPA claim.
The plaintiff’s claim under Oregon’s Unfair Trade Practices Act (UTPA) was dismissed because at the time of the loan, in 2007, UTPA had not yet been amended to include “loans and extensions of credit,” O.R.S. 646.605(6) (2010), therefore plaintiff’s loan was not covered by the Act. Additionally, UTPA claims must be brought within a year from the discovery of the “unlawful method, act or practice,” but the plaintiff failed to assert that the discovery of a UTPA violation could not have been made at the time of the loan
June 11, 2013 | Permalink | No Comments
Fieldstone Mortgage Company’s Bankruptcy Won’t Impact HSBC’s Right to Foreclose in Massachusetts
In Marron v. HSBC Bank USA, N.A., Bankruptcy Appeal No. 11-40191-NMG (D. Mass. September 26, 2012), the District Court denied homeowners’ request for certification regarding MERS’s authority to assign their mortgage, and dismissed homeowners’ bankruptcy appeal holding that the Bankruptcy Court properly lifted the automatic stay allowing HSBC to foreclose.
The homeowners procured a loan from Fieldstone Mortgage Company, with MERS designated as nominee and mortgagee. MERS assigned the mortgage to HSBC, which began foreclosure proceedings in 2007 after the homeowners defaulted. In November of 2007, Fieldstone filed for bankruptcy. The homeowners filed for bankruptcy in 2010, automatically staying foreclosure proceedings. In response, HSBC filed a petition for relief from the automatic stay, which was granted by the Bankruptcy Court.
Here, Trustee appeals from the Bankruptcy Court’s order lifting the stay and seeks to certify the following questions: 1) whether the assignment by MERS is valid under Massachusetts law without proof of authorization from the note holder, and 2) if the recorded assignment alone can establish the truth of its contents. The District Court upheld the decision of the Bankruptcy Court, holding that certification is not warranted, as Massachusetts law is reasonably clear regarding assignment validity.
There is no Massachusetts statute preventing MERS from assigning its mortgages, and the court notes that the Massachusetts Land Court acknowledged the validity of MERS’s assignments in several cases. Randle v. GMAC Mortgage, LLC, No. 09 MISC 408202 GHP (Mass. Land Ct. Oct. 12, 2010); Amtrust Bank v. T.D. Banknorth, N.A., No. 07 MISC. 350750 KCL (Mass. Land Ct. 2010). The court also notes that it has, on numerous occasions, held that MERS has authority to assign mortgages, citing Kiah, in which the court held that even if MERS doesn’t hold the beneficial interest in the property, MERS has authority to transfer the mortgage on behalf of the beneficial owner. CIV.A. No. 10-40161-FDS (D. Mass. Mar. 4, 2011).
As to the bankruptcy of the lender, the court held that “a lender’s bankruptcy does not affect the ability of MERS to assign a mortgage,” citing Kiah. The clear language of the mortgage grants MERS authority as the nominee for the “lender and its assigns” to transfer the mortgage, unaffected by the lender’s bankruptcy status. The court notes that similar reasoning was used in Rosa, holding “the dissolution of the original lender does not affect MERS’s authority to assign a mortgage.” 821 F. Supp. 2d at 431.
The court further found the assignment valid pursuant to M.G.L. Ch. 183 § 54B. MERS’s assignment complies with the statute’s requirements and is therefore presumed valid. The court cites Culhane for this explanation of validity, finding no way in which MERS’s method for assigning mortgages contradicts the statute. 826 F. Supp. 2d at 373.
The court dismissed appellant’s argument that the foreclosure was improper, as HSBC didn’t hold the note. In Eaton , the court held that the term “mortgagee” refers to “the person or entity then holding the mortgage and also either holding the mortgage note or acting on behalf of the note holder.” Eaton v. Fed. Nat. Mortg. Ass’n, 462 Mass. 569 (2012). To avoid overuse of this broad interpretation, the court held that the ruling in Eaton would not impact foreclosures commenced before the Eaton decision. Since HSBC’s foreclosure occurred pre-Eaton, HSBC was entitled to foreclose. As a result, appellant’s argument that an evidentiary hearing should have been held to determine ownership of the note was also dismissed by the court as immaterial. The appeal was denied, and the foreclosure sale upheld.
June 11, 2013 | Permalink | No Comments
June 10, 2013
FHA Whitewash
While preparing for my talk tomorrow on The FHA and Housing Affordability, I was reviewing some of the recent literature on the FHA. I came across a recent HUD working paper with some interesting data about recent FHA crises but also with a disturbing spin on the FHA’s history. The FHA Single-Family Insurance Program: Performing a Needed Role in the Housing Finance Market states that in its early years “race was not explicitly regarded as a factor in FHA’s mortgage insurance operations.” (9) This is flat out wrong and has been known to be flat out wrong at least since Kenneth Jackson published Crabgrass Frontier in 1987. Jackson clearly demonstrated that race was “explicitly regarded as a factor in FHA’s mortgage insurance operations.”
Jackson writes that the FHA’s Underwriting Manual from those early years stated that “[i]f a neighborhood is to retain stability, it is necessary that properties shall be continued to be occupied by the same social and racial classes” and recommended that owners employ restrictive covenants to exclude African Americans (and some other groups). (208) The working paper has other extraordinary statements that minimize the FHA’s central role in promoting segregation during the mid-20th Century. For instance, it states that the FHA’s “early policy may have inadvertently promoted redlining practices.” (18) There was nothing “inadvertent” about it.
I typically find that federal government reports make great efforts to be factually accurate, so this paper is a great exception. One might think that the authors deserve some leeway in their interpretation, but Jackson’s history has only been confirmed by later research, such as last year’s Do Presidents Control Bureaucracy? The Federal Housing Administration During the Truman-Eisenhower Era which was published in Political Science Quarterly. It makes much the same point as Crabgrass Frontier. I would be curious to hear the authors’ response to my assessment, but I really can’t see how they can deny it.
“Those who cannot remember the past are condemned to repeat it.” (Santayana)
June 10, 2013 | Permalink | No Comments
June 7, 2013
Mass. Appeals Court Applies Eaton Retroactively
The intermediate appeals court of Massachusetts applied Eaton retroactively in Lyons v. MERS et al., 11-P-560 (June 5, 2013) notwithstanding the Mass. Supreme Court’s holding that Eaton would only apply prospectively. Eaton held that “a mortgagee may foreclose under a power of sale only if it either holds the note or is acting under the direction or as the agent of the note holder.” (1)
The intermediate appeals court found that it would be inequitable to do otherwise: “Not only was the present case on appeal when Eaton was decided, the Lyonses actually brought their action before Eaton had even been decided in the trial court. Because the Lyonses are in an identical situation to the plaintiffs in Eaton, not a ‘somewhat similar[]’ position,” the court held “that the rule of Eaton is applicable to the Lyonses’ case, and reverse[d] the judgment” of the trial court. (1, citations omitted)
June 7, 2013 | Permalink | No Comments
Mass. Trial Court Upholds MERS Foreclosure
Judge Cutler granted MERS and Countrywide’s motion to dismiss plaintiff Lyons challenge to the validity of a foreclosure deed arising from a foreclosure sale conducted by MERS in Lyons v. MERS et al. Misc. 09 416377 (Jan. 4, 2011). The court held that “the Plaintiffs expressly granted the Mortgage to MERS (as nominee for the Lender), with the power of sale. As a result of this grant, MERS needed no assignment” from Countrywide.” (3) The court found that “such an arrangement is entirely consistent with the express terms of the Mortgage, as well as with Massachusetts law.” (3) The court found it intolerable to reach a result where “the logic of a denial of MERS’s foreclosure right as mortgagee would lead to anomalous and perhaps inequitable results, to wit, if MERS cannot foreclose though named as mortgagee, then either [the lender] can foreclose though not named as mortgagee or no one can foreclose, outcomes not reasonably or demonstrably intended by the parties.” (3) Not sure that those are the only possibilities (for instance, MERS could assign the mortgage to its beneficial owner), but there you have it.
June 7, 2013 | Permalink | No Comments
Rhode Island Superior Court Finds in Favor of MERS, Upholding Foreclosure by Deutsche
In O’Brien v. Mortgage Electronic Registration Systems KC 2009-1695 (R.I. Sup. June 4, 2012) the court found in favor of the defendants, MERS and Deutsche Bank. The court held that Rhode Island law allows for the assignment of a mortgage where a homeowner has executed a mortgage with explicit language providing the right to assign the mortgage and allows for the separation of a mortgage from a note.
O’Brien brought this action to quiet title to his property challenging the foreclosure sale by Deutsche Bank. On January 3, 2007, O’Brien executed a promissory note in favor of New Century Mortgage Corporation and he also executed a mortgage on the property naming MERS as the nominee providing that “if necessary to comply with law or custom, MERS has the right: to exercise any or all of those interest, including but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.” Six days after executing the mortgage a corrective mortgage was executed to include metes and bounds which had been excluded from the initial mortgage. One year and two months later MERS assigned the mortgage to Deutsche Bank. O’Brien defaulted on the mortgage in the summer of 2009 and Deutsche foreclosed on the property.
The court relied upon Payette v. Mortgage Electronic Registration Systems in finding that the mortgage sale was valid because O’Brien bound himself to the language of the execution with MERS which stated in clear and unambiguous language that MERS held the right to “release.” Rhode Island law does not require a recording of power of attorney for MERS to act on the behalf of a company as its nominee. O’Brien then argued that New Century’s bankruptcy terminated its nominee relationship with MERS but this argument failed since the mortgage was executed with MERS well before New Century became bankrupt.
The court rejected O’Brien’s argument that the mortgage to Deutsche was void because only the defective mortgage was transferred. The court found that mortgages lacking formal requisites are considered agreements to give a mortgage and effective as between parties though not binding as to third parties. Relying upon Kriegel v. Mortgage Electronic Registration Systems, when MERS assigned the mortgage to Deutsche, all of the legal rights which MERS held by the agreement, including the power to sell after O’Brien’s default, were transferred to Deutsche. Therefore, the deeds defectiveness was irrelevant because the agreement was binding between the original parties and MERS transferred its entire interest to Deutsche, including the right to sell.
The court did not find a conflict with the U.S. Supreme Court’s ruling in Carpenter v. Longan determining that a mortgage and note are inseparable under Colorado law because the Rhode Island statute §34-11-24 indicates that the assignment of a mortgage will be followed by “the note and debt thereby secured.” Therefore MERS, recognized under Rhode Island law as the nominee of the current note holder, assigned both the mortgage and the note and debt to Deutsche. As the note and mortgage holder, Deutsche had the right to foreclose. Furthermore, Rhode Island has long respected that homeowners as non-parties to a contract cannot challenge the “propriety of mortgage assignments and the effect those assignments could have, if any, on the underlying obligation.”
The court found in favor of the defendants, the foreclosure was valid.
June 7, 2013 | Permalink | No Comments
Rhode Island Superior Court Finds MERS has Standing and Assignment to Deutsche Bank Post-Foreclosure was Unchallengeable by Property Owners
In Deutsche Bank v. Falconer (R.I. Sup. May 1, 2012) three actions were consolidated into one opinion. Deutsche prevailed on its possession of property claim in the Sixth Division District Court and Falconer appealed the decision and also filed a separate claim to quiet title. All claims are consolidated here since they hinge upon whether MERS had standing to foreclose and assign its interest to Deutsche post-foreclosure.
In June 2007, the falconers obtained a $252,000 note with Fremont Investment and a mortgage designating MERS, “solely as nominee for Lender and Lender’s successors and assigns,” as the mortgagee with the “statutory power of sale.” In 2009, MERS provided notice of foreclosure to the Falconers and publicized a foreclosure sale for twelve consecutive weeks and at the sale MERS prevailed as the highest bidder. After the foreclosure sale, MERS assigned all of its title in the property to Deutsche Bank.
Foreclosure was proper: The court found that MERS had standing for the foreclosure because of the clear language of the mortgage, Rhode Island statute §34-11-24, as well as jurisprudence from Rhode Island. Relying on Bucci ( WL 3328373, 2009), the court found that the language of the original mortgage provided that MERS was the mortgagee and the nominee for the lender and therefore could exercise all rights to the property, including its sale. Furthermore, §34-11-24 specifically provides that the assignment of a mortgage will be followed by the assignment of the note and any debt secured. Therefore, MERS must have the power of sale given that MERS has the power to assign the mortgage as well as the note under §34-11-24. MERS had standing to foreclose.
Transfer to Deutsche was proper: The court rejects the Falconer’s argument that since MERS was the holder of only the mortgage they could not assign any interest to Deutsche. Rather the court relies on Bucci ( WL 3328373, 2009) and Payette for support that MERS was mortgagee as well as nominee to the lender and could transfer both the mortgage and the note. The court also relies upon the “gravel rule” which cuts off a debtor’s right to cure an assignment at the foreclosure sale. Therefore, even if the assignment were invalid Falconers did not have a valid action to rescind the foreclosure because “a foreclosure conducted by statutory power of sale shall forever be a perpetual bar against the mortgagor.” The assignment to Deutsche fulfilled the two statutory requirements of §34-11-24 because it was in the form entitled “Assignment of Mortgage” and was duly executed.
Furthermore the court determined that the sale to Deutsche had no effect on property title because it occurred after the foreclosure and Deutsche therefore holds all rights which were previous held by MERS, post-foreclosure. The court finds it is a well-established principle that at a foreclosure sale the purchaser obtains a title free and clear of all interests that were junior to the lien that was foreclosed and any presumptions should be in favor of the legal title holder, Deutsche in this case. The transfer to Deutsche was proper.
As to the quiet title action, judgment is in favor of defendants and both of Falconer’s District Court Appeals are dismissed and remanded for a decision consistent with that determined by the court.
June 7, 2013 | Permalink | No Comments
