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
April 9, 2013
United States District Court of Nevada Holds that under Nevada Law, Foreclosure Proceedings can be Commenced by the Beneficiary
In Ramos v. MERS, No. 2:08-CV-1089, 2009 WL 5651132 (D. Nev. Mar. 5, 2009), court concluded that, under Nevada law, foreclosure proceedings can be commenced by “the beneficiary, the successor in interest of the beneficiary, or the trustee” and, thus, that MERS had a right to foreclose. Since the deed of trust expressly named MERS as beneficiary, MERS had the right to commence foreclosure and to appoint the substitute trustee. In their purchase of a home, homeowners made a loan and the deed of trust on the loan with Bayporte designated MERS as the beneficiary, and authorized MERS to act as a nominee. MERS then executed a Substitution of Trustee, naming Cal-Western as the trustee under the Deed of Trust. Cal-Western issued and recorded a “Notice of Breach and Default and of Election to Cause Sale of Real Property Under Deed of Trust.” The property was sold at a trustee’s sale. Homeowners claimed that the foreclosure on their home was wrongful and alleged that the party that authorized the foreclosure was not authorized to do so, that the sale was not carried out in accordance with Nevada law, and that Nevada law authorizing non-judicial foreclosures and Defendants’ actions in accordance therewith violate Plaintiffs’ rights to procedural and substantive due process. The court dismissed this claim because they found that MERS was empowered to foreclose on the property and to appoint Cal-Western as substitute trustee for purpose of conducting the foreclosure.
April 9, 2013 | Permalink | No Comments
U.S. Bankruptcy Court of Western District Missouri Holds that Agency Relationship created when MERS is Designated as a Nominee
In re Tucker, 441 B.R. 638 (Bankr. W.D. Mo. 2010), court held that designation of MERS as a nominee in the Mortgage is “more than sufficient to create an agency relationship between MERS and the Lender and its successors in Missouri” and that MERS may exercise any rights that the Lender may exercise under the Mortgage. The case arose from a challenge made by the Chapter 7 trustee. The Trustee asserted that the movant was not the holder of both the Note and Deed of Trust on the date of the bankruptcy filing, that the Note and Deed of Trust were split as of that date, and that the Deed of Trust is now unenforceable. The Debtor had signed an Adjustable Rate Note and a Deed of Trust, which identifies the Lender as “New Century Mortgage Corporation. The Deed of Trust goes on to state that the beneficiary of the Deed of Trust is MERS as “nominee” for the Lender and its successors and assigns.That Deed of Trust was properly recorded with the Recorder of Deeds. While the Note had been assigned several times prior to the bankruptcy, no assignment of the Deed of Trust had been recorded prior to that date. Therefore, as of the date of bankruptcy, the records of the Recorder of Deeds still showed that New Century was the grantee under the Deed of Trust and that MERS, as nominee for New Century, was the beneficiary under the Deed of Trust. Nevertheless, the court concluded that assuming that the note-holder is a member of MERS, thereby creating an agency relationship, the fact that MERS is identified as the beneficiary under a deed of trust for the benefit of the note-holder does not create a split between the note and deed of trust.
April 9, 2013 | Permalink | No Comments
Massachusetts Appellate Court Upholds MERS’ Authority to Assign Mortgage
In Bassilla v. GMAC Mortgage, et al., No. 09-J-519 (Mass. App. Ct. Dec. 4, 2009), Court upheld MERS’ authority to assign the mortgage as the mortgagee. Such authority to assign its mortgage interest was held to exist despite the fact that MERS did not own or hold the underlying promissory note. This Court specifically held that MERS, “the lender’s nominee and record title holder had the ability to make a valid assignment.”
April 9, 2013 | Permalink | No Comments
No News to Report on Preemption
The Fourth Circuit recently reversed a dismissal of a fraud claim in McCauley v. Home Loan Investment Bank, F.S.B.; Deutsche Bank National Trust Company. The main issue on appeal was whether the Home Owners’ Loan Act preempted the homeowner’s state law claims arising from a mortgage originated by a federal savings association. While the court affirmed the dismissal of the unconscionability claim as preempted by HOLA, it held that the fraud claim “only incidentally affects lending, it is not preempted by HOLA or its implementing regulation . . ..” (12-13)
As to the unconscionability claim, the court found that McCauley “in essence asks us to impose new, substantive requirements on mortgage lenders.” (10) But as to the fraud claim, the court found that HOLA and its implementing regulation were not intended to “preempt state laws that establish the basic norms that undergird commercial transactions.” (7, citation omitted) McCauley does not blaze a new path on preemption, but it is consistent with a number of recent decisions that refuse to broadly preempt state consumer protection laws, a welcome trend.
April 9, 2013 | Permalink | No Comments
April 8, 2013
Rule of Law Cuts Both Ways
The New York Appellate Division (2d Dep’t) reversed orders by Justice Schack of New York Supreme Court (Kings County) in HSBC Bank USA, N.A. v. Taher. Justice Schack became something of a folk hero to many for holding lenders’ feet to fire for their lackadaisical approach to various formal requirements for foreclosures. But he has been accused of playing fast and loose with the law himself. Just as many have rightly said that lenders should be made to comply with the law governing foreclosures, those opposing lenders must do the same. The Appellate Division wrote
Since Emmanuel was decided approximately two months before the Supreme Court improperly directed dismissal of the complaint in the instant action, sua sponte, for lack of standing, we take this opportunity to remind the Justice of his obligation to remain abreast of and be guided by binding precedent. We also caution the Justice that his independent internet investigation of the plaintiff’s standing that included newspaper articles and other materials that fall short of what maybe judicially noticed, and which was conducted without providing notice or an opportunity to be heard by any party (citation omitted) was improper and should not be repeated. (4)
There can be the rule of law without justice, but there can be no justice without the rule of law.
April 8, 2013 | Permalink | No Comments
April 11, 2013
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