April 12, 2013
Southern District Court of Texas Dismissed Complaint that MERS Lacked Standing
In Maxwell v. Chase Home Finance, No. H-09-4038, 2011 WL 181345 (S.D. Tex. Jan. 19, 2011), the court dismissed homeowner’s “cookie cutter” complaint that MERS lacked standing to sue. Maxwell, the homeowner, alleged (1) that Chase Home Finance violated these provisions, (2) that they did not supply or execute a Promissory Note to accompany the Texas Security Deed, and (3) that the Texas Security Deed was transferred and sold without proper notice. He further complained that MERS was used to foreclose on his real property and conclusorily charged that MERS has no standing to bring an action for foreclosure. The court found most of the claims to be barred by the statute of limitations. It also found that the complaint was a “third bite of the apple” and that permitting another amendment to the complaint would not only be inappropriate, but would be prejudicial. Therefore the motion was dismissed.
April 12, 2013 | Permalink | No Comments
Texas Court of Appeals Upholds MERS’ Authority to Conduct a Non-Judicial Foreclosure
In Athey v. MERS, 314 S.W.3d 161 (Tex. Ct. App. 2010), the appellate court affirmed trial court’s grant of summary judgment to MERS, holding that MERS was the beneficiary of the deed of trust and, therefore, had authority to conduct a non-judicial foreclosure.
The homeowners executed a promissory note payable to Decision One Mortgage Company, LLC. The note was secured by 2.5057 acres, and the homeowners executed a deed of trust that named MERS as Decision One’s nominee and the mortgagee. The note was entitled:
TEXAS HOME EQUITY NOTE
(Cash Out—Adjustable Rate—First Lien)
(LIBOR Six-Month Index (As Published in the Wall Street Journal)— Rate Caps)
THIS NOTE CONTAINS PROVISIONS ALLOWING FOR CHANGES IN MY INTEREST RATE AND MY MONTHLY PAYMENT. THIS NOTE LIMITS THE AMOUNT MY INTEREST RATE CAN CHANGE AT ANY ONE TIME AND THE MAXIMUM RATE I MUST PAY.
In contrast to this language, the homeowners contended that an unnamed representative of Decision One told them at closing that the note had a fixed interest rate. The homeowners corroborated this contention with an affidavit from a disinterested person who was also present at closing. Two years later, Decision One raised the interest rate from 7.79% to 10.79%.The homeowners became delinquent, and HomEq Servicing Corporation, as servicer for MERS, accelerated the note when the delinquency was not cured and initiated foreclosure proceedings.
With regards to their allegation of fraud, the court found that the evidence did not establish the trickery, artifice, or device necessary to void a promissory note. The oral representation upon which they rely is directly, clearly, and conspicuously contradicted by the note’s heading and introductory paragraph. They rejected the argument that a fraudulent inducement cause of action can never lie merely because the operative oral representation is contradicted by a provision within the contract.
The court also rejected the argument that there is no evidence establishing that MERS is the owner and holder of the note. It reasoned that MERS never contended that it owned or held the note and the evidence established that Decision One was the owner and holder. The court found that it was the deed of trust that clearly gives MERS the authority to initiate foreclosure.
April 12, 2013 | Permalink | No Comments
Texas Court of Appeals Holds that MERS has Standing
Hunt v. MERS, No. 03-10-00031-CV, 2010 WL 3271966 (Tex. Ct. App. Aug. 20, 2010), the court rejected the homeowner’s argument that MERS lacked standing. The court found that the homeowner did not present any arguments or authorities addressed to the merits but instead purports to challenge “standing” by alleging that neither MERS, Inc., nor its successor, Deutsche Bank National Trust Company, as Indenture Trustee Under the Indenture Relating to IMH Assets Corp., Collateralized Asset-Backed Bonds, Series 2004-1, has “standing” to sue because MERS was listed on the deed of trust for the property as the “nominee” and “mortgagee,” not the “lender.” The court held that the complaint was without merit.
April 12, 2013 | Permalink | No Comments
On Fairy Tales for the Subprime Era
Practicum has posted my short article, The Emperor’s New Loans: A Cautionary Tale from the Subprime Era, today. It begins
A body of folk tales from the subprime mortgage era is now being written. Some are in PowerPoint. Some are in video format. Some appear in the guise of a non-fiction account. After all, isn’t The Big Short just Jack the Giant Slayer—with the little guys not only ending up with the gold, but also with the big guys dead on the ground? And some stories, like the one below, are just plain old fairy tales.
You might ask why a complex financial crisis needs such folk tales. And I would tell you that they are necessary because they help us to identify the essence of the crisis. They can also make the significance of the crisis clear to non-experts. And they can help shape government responses to the last crisis in order to avert potential future crises. Luckily, noted storyteller Philip Pullman offers us some guidance on finding the essence of a story.
The rest of the article can be found here.
April 12, 2013 | Permalink | No Comments
April 11, 2013
District Court of Oregon Holds that Assignment is Proper
In Stewart v. MERS, No. CV-09-687-PK, 2010 WL 1055131 (D. Or. Feb. 9, 2010), the court granted MERS’ motion to dismiss and found that U.S. Bank was a real party in interest because the assignment from MERS to U.S. Bank was proper under Oregon law. The loan documents indicate that the homeowner executed a Deed of Trust encumbering the Property, delivered to and for the benefit of MERS, as nominee for BNC Mortgage Inc. The Deed of Trus was recorded. The homeowner later defaulted under the terms of the Deed of Trust. The Deed of Trust was subsequently assigned to U.S. Bank as Trustee for Structured Asset Securities Corporation Mortgage Pass-Through Certificates. The assignment was recorded and U.S. Bank appointed NWTS as the successor and foreclosing trustee. The homeowner filed a complaint alleging that US Bank was not a “real party in interest” and therefore did not have “standing to bring this Trustee’s Sale,” and sought an injunction to halt the foreclosure proceedings. The court upheld the lower court’s conclusion that production of the original Note and Deed of Trust satisfied the demand for “proof” that they had a right to proceed with the foreclosure. Moreover, the Oregon Trust Deed Act does not require presentment of the Note or any other proof of “real party in interest” or “standing,” other than the Deed of Trust. Assignment and appointment of a successor trustee must be recorded in the real property records, and in this case the statutory requirements were met because assignment and appointment of a successor trustee were recorded.
April 10, 2013
Can’t Stand It, Just Show Me The Note
The federal District Court for Massachusetts issued a Memorandum and Order in Ross v. Deutsche Bank National Trust Company that has two interesting aspects. First, it follows the 1st Circuit’s recently decided Culhane. Second, it reaffirms that “show me the note!” is alive and well in Massachusetts. The Rosses alleged that Deutsche Bank violated Massachusetts statutory foreclosure scheme. These alleged violations included: 1. lack of standing and 2. Deutsche Bank did not have “valid title to either the Note or the Mortgage and thus lacks the legal authority to conduct a foreclosure sale of the subject property.” (7-8)
The bottom line on standing: the Massachusetts Supreme Court (in Eaton v. Fannie Mae), along with the federal District Court of Massachusetts and the First Circuit have been requiring “strict compliance with the regulations governing who has legal standing to foreclose . . ..” (8)
The bottom line on “show me the note:” this court was willing to carefully parse the chain of title to a note and mortgage. In this case, they had been owned by New Century which was dissolved by a bankruptcy court. The court found that “the Rosses have stated a plausible claim that the [] assignment from New Century to Deutsche Bank was invalid.” (13) So, while some courts are not so strict about establishing the legal chain of title to a note and mortgage,we now know that this court is.
April 10, 2013 | Permalink | No Comments
Careful When Putting Shoe on Other Foot
By David Reiss
Nestor Davidson has posted a very useful article to SSRN, New Formalism in the Aftermath of the Housing Crisis. The article notes that as “borrower advocates have responded to [the] surge in mortgage distress, they have found success raising a series of largely procedural defenses to foreclosure and mortgage-related claims asserted in bankruptcy.” (391)
Davidson points out that this “renewed formalization in the mortgage distress system is a curious turn in the jurisprudence” because from “the earliest history of mortgage law, lenders have had a tendency to invoke the hard edges of law’s formal clarity, while borrowers have often resorted to equity to obtain a measure of substantive fairness in the face of such strictures.” (392)
What I particularly like about this article is that it takes the broad view on downstream (homeowner foreclosure and bankruptcy) litigation. Instead of painting a pointillistic portrait of all of this “mortgage distress” litigation (a standing case here, a chain-of-assignment case there), Davidson identifies a pattern of formalistic defenses being raised by homeowners and puts it into historical context.
Davidson warns of the potential unintended consequences of this development: “The borrower push to emphasize formalism in mortgage practice, however understandable, may thus give primacy to the set of judicial tools least amenable to claims of individual substantive justice.” (430)
I don’t think that I agree that this new formalism will bite homeowners in the end. As Davidson himself acknowledges, “formalism need not be equivalent on both sides . . ..” (430) But I do agree with his conclusion:
For those concerned about the long-term structural balance between procedural regularity and substantive fairness embodied in the traditional realms of law and equity, the brittleness that the new formalism may be ushering in is worth considering and, perhaps, cause for redoubling efforts to find structural solutions to a crisis that even now continues. (440)
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April 11, 2013 | Permalink | 1 Comment