April 7, 2013
Michigan District Court Dismisses Homeowner’s Action to Declare Foreclosure Null and Void
In Olesuk v Fed. Natl. Mort. Assoc., 2:12-cv-11001 (Dist. Ct. Mich. 2012), the court dismissed an action by homeowners against the parties involved in the multiple assignments of their mortgage, including MERS (Defendants). Homeowners brought the action after defaulting on their mortgage, seeking a declaration that the foreclosure action brought by the mortgagee be declared null and void. The homeowners brought the following claims: “(1) Quiet Title; (2) Fraud in the Assignment against JPMorgan and Chase Home (related to the 2009 assignment); (3) Fraud in the Assignment against Chase Home and MERS (related to the 2010 assignment); (4) Fraud in the Signatures (Robosigning); (5) that Defendants are not the real parties in interest and lack standing to foreclose, and; (6) Slander of Title.”
Homeowners’ claims rested on two facts. First, they claimed that the notarized certifications of the 2009 and 2010 assignments were false and therefore the assignments were invalid. Second, homeowners claimed that Fannie Mae executed an unrecorded assignment of the note to a REMIC, that the REMIC was not a party to the subsequent transfers of the mortgage, and thus the assignments were invalid.
The court rejected all of homeowners’ claims. The first and fifth claims were based on an argument “that Defendants may not foreclose on the property because the allegedly fraudulent or forged signatures and the transfer to the REMIC trust rendered the assignments invalid.” The court rejected this argument because “as non-parties to the assignments, [homeowners] lack standing to challenge their validity.”
The court rejected the second, third, and fourth claims because homeowners could not “establish that they relied to their detriment upon the allegedly forged signatures or fraudulent assignments.” The court then rejected the sixth claim because “the assignments, fraudulent or not, do not disparage Plaintiffs’ claim of title.”
April 7, 2013 | Permalink | No Comments
District Court for the Northern District of Illinois Finds No Wrongdoing in MERS’s Assignment & Deutsche Bank’s Ensuing Foreclosure
In Long v. One West Bank, No. 11 C 703 (N.D. Ill. 2011), the District Court for the Northern District of Illinois denied OneWest Bank, MERS & Deutsche Bank’s motion to dismiss in part as moot, and granted the motion in part. Additionally, the court denied defendant Albertelli’s motion to dismiss as moot.
Plaintiff Tammy Jo Long entered into a residential mortgage loan with Taylor, Bean, & Whitaker (TBW) in 2005 for property located in Georgia. Plaintiff Castle Home Builder’s, Inc. allegedly invested in improving the property and maintained a claim against the property. After numerous requests to identify the current lawful owner and holder of the Note and Security Deed, Ms. Long stopped making payments. While Deutsche represented that it was the owner in a non-judicial foreclosure proceeding, plaintiffs contended that TBW’s bankruptcy had precluded any transfer of interest in the Note to Deutsche. Plaintiffs also contended that Deutsche used a fabricated copy of the Note and Assignment to support their foreclosure action.
Plaintiffs’ amended complaint alleged six separate counts:
- Violations of the Fair Dept Collection Practices Act (FDCPA)
- Violation of the Illinois Uniform Deceptive Trade Practices Act
- Violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (Fraud Act)
- Violations of the Fair Credit Reporting Act
- Wrongful foreclosure
- Quiet title claim
Plaintiffs consented to voluntarily dismiss all claims against defendant Albertelli. Plaintiffs also consented to dismissing counts 2, 4, and 6 against OneWest Bank, MERS and Deutsche Bank without prejudice.
The court discussed TBW’s bankruptcy, and the validity of the copy of the Note and Assignment of Deed. First, the court concluded TBW’s bankruptcy was irrelevant to the assignment since MERS was the grantee under the Security Deed. Second, the court rejected the claim that a copy of the note was insufficient, stating “[t]here is no requirement…that an original promissory note be produced in order to execute a valid assignment, and Plaintiffs have failed to point to any law providing such a requirement.” Third, the court rejected claims that the assignment violated the Pooling and Servicing Agreement (PSA), concluding plaintiffs lacked standing to assert the claims as they were not parties to the PSA nor had they cited any precedent holding that an assignment is invalid because it conflicts with the PSA.
Wrongful foreclosure
The court concluded that plaintiffs had not “alleged any facts that would plausibility [sic] suggest that Defendants engaged in a wrongful foreclosure action or that Plaintiffs were damaged by any unlawful conduct by Defendants relating to the foreclosure.” Therefore, they granted defendant’s motion to dismiss the wrongful foreclosure claim.
FDCPA Claims
The court concluded that the FDCPA was inapplicable in this case because the debt related to commercial debt rather than consumer debt. Additionally, the court noted plaintiffs “failed to point to precedent indicating that a non-judicial foreclosure is considered debt collection activity protected by the FDCPA.” Therefore, they granted defendant’s motion to dismiss the FDCPA claims.
Fraud Act
The court also rejected plaintiffs’ fraud claims, concluding that “Deutsche was assigned the power of sale and there [were] no allegations that plausibly suggest that the foreclosure sale was unlawful.” Accordingly, the court concluded plaintiffs failed to meet FRCP Rule 9(b) particularity requirements.
April 7, 2013 | Permalink | No Comments
The Michigan Eastern District Court Grants MERS and other Defendants’ Motion to Dismiss Because Homeowners Failed to State a Claim
In Safford v. Precision Funding, 09-14925-BC, 2010 WL 548504 (E.D. Mich. Feb. 9, 2010), the court granted Defendants’ motion to dismiss.
In August 2004, Jeffrey Safford and Denise Safford purchased their home and obtained a fixed rate mortgage loan for $124,000 with lender First Federal of Northern Michigan. In 2006 the Saffords refinanced their loan with Countrywide Home Loans Inc., and secured the note by granting a mortgage on the property to MERS as nominee for Countrywide and Countrywide’s successors and assigns. Precision Funding and other Defendants asserted that the Saffords defaulted on their loan. An advertisement for the mortgage sale was published four times between August 15, 2008 and September 5, 2008. MERS purchased the property for $150,411.92 at the foreclosure sale on October 10, 2008. Then, on October 15, 2008 MERS transferred its interest to Countrywide for one dollar by quit claim deed. The Saffords alleged that MERS, as a nominee, had no financial or other interest in whether or not a mortgage loan was repaid and no standing to pursue a foreclosure of the Saffords’ mortgage. Defendants motioned to dismiss the Saffords’ claims for failure to state a claim.
The Saffords first alleged that they relied on the representations of Defendants in entering into the refinances of their principal home loan. The court held that Defendants were entitled to dismissal of the Saffords’ fraudulent inducement claims because the Saffords plead conclusory statements rather than any particularized facts as to the actions of those Defendants. Next, the Saffords alleged a breach of contract claim against Defendants. The court dismissed the Saffords’ breach of contract claim, however, because it was barred by the statute of frauds—the Saffords did not allege the breach of a written agreement.
The Saffords alleged that none of the Defendants were the owners of the indebtedness nor had an interest in the indebtedness because it had been securitized to Precision One and not properly transferred to the other Defendants. Under Michigan law, a party may foreclose if “the party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” Here, the Defendants claimed that Countrywide foreclosed the loan and the Saffords alleged that Defendants did not have the requisite interest since the loan was securitized to Precision One. But the Saffords did not defend their allegation in response to the Defendants’ motion to dismiss, nor had they provided an explanation as to how the alleged securitization would affect Defendants’ interests. As a result, the court granted Defendants’ motion to dismiss
April 7, 2013 | Permalink | No Comments
April 6, 2013
Minnesota District Court Denies Plaintiffs’ Quiet Title Claim Because of Default; Plaintiffs Fail to Sufficiently Allege Slander of Title Claim
In Novak v. JP Morgan Chase Bank, CIV. 12-589 DSD/LIB, 2012 WL 3638513 (D. Minn. Aug. 23, 2012), the United States District Court of Minnesota granted the defendants’ motion to dismiss the plaintiffs’ claims.
In the case at hand, each plaintiff executed a promissory note and mortgage of real property in Minnesota. Thereafter, each plaintiff defaulted. Each defendant either initiated foreclosure-by-advertisement proceedings against a particular plaintiff or threatened such proceedings in accordance with the respective mortgages. Every mortgage in this case states that the lender or its successors or assignees “may require immediate payment in full of all sums secured by the mortgage and may invoke the power of sale” when a mortgagor defaults under the mortgage. The mortgages are in various stages of default, ranging from potential foreclosure to completed sheriff’s sale. Plaintiffs’ sought to quiet title and also claimed slander of title. The court dismissed each of these claims in turn.
First the court denied the plaintiffs’ quiet title claim. The court reasoned, “actions to quiet title and determine adverse claims are equitable actions,” and a “plaintiff who seeks equity must come into court with clean hands.” The court found that plaintiffs in the present action came to the court with “unclean hands” because they had each defaulted on their respective mortgage loans by failing to make promised payments. The plaintiffs wanted to make their respective mortgages invalid after defaulting. The court concluded that the plaintiffs in this case sought equitable relief “from an outcome of their own creation.”
The court then considered the plaintiffs’ slander of title claim. To state a claim of slander of title, a plaintiff must allege facts that show: (1) That there was a false statement concerning the real property owned by the plaintiff; (2) that the false statement was published to others; (3) that the false statement was published maliciously; and (4) that the publication of the false statement concerning title to the property caused the plaintiff pecuniary loss in the form of special damages. The court stated that the plaintiffs failed to “allege facts from which the court could infer that defendants made a false statement, that defendants acted with malice or that plaintiffs suffered any pecuniary damages from the publication of amounts due on their mortgages.” Thus, the claim was dismissed.
April 6, 2013 | Permalink | No Comments
Utah State Court Holds that MERS Maintains Its Rights Under the Deed of Trust Despite the Sale and Securitization of the Underlying Note
In Commonwealth Property Advocates v. Mortgage Electronic Registration System, 263 P.3d 397, (2011), the Court of Appeals of Utah affirmed a Utah district court’s order dismissing the plaintiff’s complaint. In the case at hand, a home buyer executed a promissory note in favor of her lending bank for $417,000. The note was secured under the terms of a deed of trust describing property in Utah as collateral for the debt. The deed of trust identified MERS as the “nominee for Lender and Lender’s successors and assigns” and as the “beneficiary under this Security Instrument.” Moreover, MERS had the right “to exercise any or all of Lender’s interests, 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 the Security Instrument.” The lender assigned its servicing rights to Citi. It was alleged that the lender promptly sold the debt represented by the note to Fannie Mae, which led to the securitization of the home buyer’s debt. On December 6, 2009, MERS assigned its “beneficial interest” to Citi. The home buyer defaulted on the note, and on approximately December 8, 2009, the successor trustee to the deed of trust recorded a notice of default and election to sell. On December 31, 2009, a quitclaim deed was recorded by which the home buyer transferred her interest in the Utah property to Commonwealth Property Advocates (CPA).
The plaintiff argues that securitization of the note “nullified MERS’s and Citi’s rights under the terms of the Deed of Trust.” The plaintiff goes on to say that Utah Code § 57-1-35 provides that the deed of trust, and all of the rights associated with it, were transferred with the note to the investors when the note was securitized, “thereby stripping MERS and Citi of any rights carved out in the terms of the deed of trust.”
The court, however, disagreed with the plaintiff’s argument and interpretation of Utah Code § 57-1-35. The court reasoned that the “plain language of this statute simply describes the long-applied principle in [this] jurisdiction that when a debt is transferred, the underlying security continues to secure the debt.” The court further interpreted Utah Code § 57-1-35 as ensuring the basic presumption that “a transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise.” Moreover, the “plain language of the statute does nothing to prevent MERS from acting as nominee for Lender and Lender’s successors and assigns when it is permitted by the Deed of Trust.” The deed of trust explicitly gave MERS the right to foreclose on behalf of “Lender and Lender’s successors and assigns.” The statute does not prohibit parties from contracting for these arrangements, and nowhere in the documents themselves is MERS explicitly prohibited from then assigning its beneficial interests under the note to Citi. Thus, MERS and Citi maintained their rights as provided under the deed of trust despite the securitization process.
April 6, 2013 | Permalink | No Comments
April 5, 2013
Massachusetts Bankruptcy Court Holds that Mortgagee has Standing to Request Relief from Stay Because Homeowner Lacked Equity in his Property
In In re Lopez, 446 B.R. 12 (Bankr. D. Mass. 2011), the court granted Mortgagee’s Motion for Relief .
On October 28, 2004, Henry Lopez—the Debtor—executed a note in the amount of $360,000 to Shelter Mortgage Company, LLC. To secure that obligation, Lopez also granted a mortgage to MERS as nominee for Shelter. MERS subsequently assigned the Mortgage to Aurora Loan Services, LLC, and recorded it in the Registry on April 13, 2008.
Lopez filed a skeletal Chapter 13 petition on January 17, 2009. On September 3, 2010, Aurora filed a Motion for relief from stay asserting that Lopez was three post-petition payments in arrears, the promissory note was in default, the Property was not necessary for an effective reorganization, and Lopez lacked equity in the Property. Lopez argued that a Chapter 13 debtor’s home is necessary for an effective reorganization. He also asserted that Aurora could not seek relief from stay solely based on missed or reduced payments during the modification process.
For Aurora to have standing to bring a Motion for Relief, Aurora had to be “a party in interest.” In Massachusetts, a Mortgagee with a power of sale is a party in interest. Here, Aurora presented documents illustrating that MERS, as nominee for Shelter, was the original Mortgagee who assigned the Mortgage to Aurora. Thus, Aurora established a colorable claim to the Property as Mortgagee.
Lopez asserted that the Mortgage Assignment without the note was a nullity. But under Massachusetts law, “where a mortgage and the obligation secured thereby are held by different persons, the mortgage is regarded as an incident to the obligation, and, therefore, held in trust for the benefit of the owner of the obligation.” Even though MERS never had possession of the Note, it legally held the Mortgage in trust for the Note holder. Lopez also contended that MERS, as nominee of Shelter, could not assign the Mortgage to Aurora. But even though MERS never held the Note, it had nominee status and thus could transfer the Mortgage on behalf of the Note holder.
In determining whether relief from stay was warranted, Aurora had to show that their interest in Lopez’s Property was not adequately protected pursuant to 11 U.S.C. § 362(d)(1), or show Lopez’s lack of equity in the Property pursuant to 11 U.S.C. § 362(d)(2). Because Lopez’s total indebtedness was $389,615.16. The court held that his property value did not exceed his indebtedness. Thus, Lopez lacked equity in the Property.
Lopez also claimed that as a Chapter 13 debtor, there was an irrebuttable presumption that his home was necessary for an effective reorganization even though there is no equity in the Property. The court held that even if there was an irrebuttable presumption, it would still grant relief from stay because of Lopez’s post-petition arrears and the declining value of the Property in comparison to the increasing claims. Lopez then claimed that he had arrears because he was wrongly denied a modification under the Home Affordable Modification Program (HAMP). HAMP is supposed to help homeowners avoid foreclosure by obtaining loan modifications that reduce their monthly mortgage payments to sustainable levels. Borrowers seeking modifications under HAMP must satisfy a variety of eligibility requirements. Here, Lopez had not stated any theory through which he could assert standing to obtain the relief he sought. Thus, the court granted Aurora’s Motion for Relief.
April 5, 2013 | Permalink | No Comments
Reiss on Mortgage Insurance Probe, Again
American Banker also ran a story on the settlement, Lenders Likely Next Target in CFPB Reinsurance Kickback Probe (paywall) that includes an interview with me:
WASHINGTON – The Consumer Financial Protection Bureau’s enforcement actions against four large mortgage insurers are likely just the start of efforts against an alleged widespread mortgage insurance kickback scheme that involves several lenders.
The agency ordered the firms to stop reinsurance deals with mortgage lenders that were purportedly made in return for getting a larger slice of the mortgage insurance pie. It also said the insurance companies must pay a total of $15.4 million in civil money penalties and undergo additional CFPB monitoring.
Yet the paltry size of the fines – combined with additional investigations and ongoing litigation involving borrowers, insurers and big banks alleged to have participated – suggest more enforcement activity is still on the way, including against lenders that were said to have received the reinsurance business. The scheme is estimated by some to have involved as much as $6 billion in kickbacks.
“In the context of the massive amount of mortgage fraud that occurred in this industry, a $15 million penalty seems pretty small,” said David Reiss, a professor at Brooklyn Law School. “But given that further enforcement against the large financial institutions that demanded the kickbacks is possibly still on the horizon, the jury is out on whether this will be an effective set of enforcement actions.”
April 5, 2013 | Permalink | No Comments
