March 28, 2013
US District Court of Nevada Dismisses Motion of Wrongful Foreclosure, Negligence and Quiet Title
In Vazquez v. Aurora Loan Services, No. 2:08-CV-01800-RCJ-RJJ, 2009 WL 1076807 (D. Nev. 2009), the court granted MERS’ motion to dismiss claims of wrongful foreclosure, negligence and quiet title and found that the land records “sufficiently demonstrate[d] standing by Defendants with respect to the loan and the foreclosure conducted pursuant to applicable law and the Nevada foreclosure statues.” The court rejected the negligence claim because it found that neither Aurora nor MERS were the broker or lender of Plaintiffs’ conventional home mortgage loan and neither owed the alleged negligence duty as a matter of law. The quiet title claim was also dismissed because no claim was stated for wrongful closure, therefore no basis to quiet title.
March 28, 2013 | Permalink | No Comments
Kansas Bankruptcy Court Finds that Agency Relationship Exists With Use of the Word “Nominee”
Martinez v. MERS, et al., No. 09‐40886, 2011 WL 489905 (Bankr. D. Kan. Feb. 10, 2011), the court held that assignment of the Note and Mortgage to different entities does not render them void because such a split may be performed when there is an “agency relationship” between the holder of the note and the holder of the mortgage. The court also looked to the language of the mortgage and found that there was sufficient evidence to demonstrate that MERS was acting as the agent for the lender. MERS also submitted the affidavit of its Treasurer to demonstrate that an agency relationship existed. The court reasoned, “the fact that MERS and Countrywide chose to use the word “nominee,” rather than “agent,” does not alter the underlying relationship between the two parties.”
The homeowner executed and delivered a promissory note to Countrywide. The loan was made to enable the homeowner to purchase real property, which she claimed as her exempt homestead in the bankruptcy proceeding. Countrywide has remained the holder of that note. To secure repayment of the debt to Countrywide and its successors and assigns, the homeowner signed a mortgage on the property to “MERS, as the nominee for Countrywide and its successors and assigns.” The mortgage specifically identifies the lender as Countrywide Home Loans, Inc., the same Lender identified in the note, the amount of the mortgage is identical to the amount borrowed under the note, and the mortgage instrument, itself, grants Countrywide various rights. The Mortgage further states that: “MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender.” The mortgage was properly and timely recorded with the county.
March 28, 2013 | Permalink | No Comments
Indiana Superior Court Upholds MERS’ Right to Assign
The Bank of New York Mellon v. Michael R. Green, Case No. 41D01-0901-MF-00027, Johnston Superior Court (Sept. 20, 2010), held that Bank of New York Mellon‘s mortgage is enforceable and that MERS as the mortgagee, had the right to assign the mortgage. Additionally, the court found that there is no disconnection between the note and mortgage since MERS was defined as both mortgagee and nominee for Fremont, the lender, and Fremont‘s successors and assigns and acted in accordance with the terms of the mortgage.
March 28, 2013 | Permalink | No Comments
March 27, 2013
Georgia Bankruptcy Court Holds that Security Deed Creates an Agency Relationship Between Lender and MERS
In Drake v. Citizens Bank of Effingham, et. al., AP No. 10-4033 (Bankr. S.D. Ga. Feb. 28, 2011), the court held that the security deed granted to MERS satisfied the requirements of Georgia law and the language of the security deed created an agency relationship between the lender and MERS. The debtors purchased real property and to complete the transaction, they borrowed the purchase money from Citizen’s Bank of Effingham, executed a promissory note for the borrowed amount, and executed a deed to secure debt as security for that loan. The security deed named MERS as grantee and nominee for Citizen’s Bank and its successors. The note was transferred multiple times, with different entities taking possession, ownership, and servicing rights at different times. Ownership and possession of the security deed were transferred at least once. When Debtors filed Chapter 7, the Trustee commenced an adversary proceeding to determine the extent, validity, and priority of the security deed, asserting that the mortgage note was unsecured.
The court found that there “was no split of the Note and Security Deed as a matter of contract by any transfer of the Note, because the Security Deed expressly contemplate[d] that the Note [could] be transferred from the original Lender, and that MERS’ role as nominee for the Lender extend[ed] to each successive assignee.” It also held that “the note and the deed must (and do) retain a legal nexus except on the rare occasions when a mortgagee will wish to disassociate the obligation and the mortgage, but that result should follow only upon evidence that the parties to the transfer so agreed.”
March 27, 2013 | Permalink | No Comments
Martin-et Act?
I am on the record in favor of greater prosecutorial attention to the events that led to the financial crisis, but I also believe that any prosecutions that result from such investigations should arise from laws that clearly outline potential liability. Jeff Izant, a 3L at Columbia, has written a Note on an important, related topic: Mens Rea and The Martin Act: A Weapon of Choice for Securities Fraud Prosecutions?
In particular, Izant argues
that the mental state requirements for Martin Act Section 352-c misdemeanor and felony liability need to be clarified and more thoroughly supported, because the statutory text and legislative history are somewhat ambiguous, and the subsequent jurisprudence has failed to provide a coherent explanation for the current state of the doctrine. Nonetheless, the Martin Act’s text, history and underlying policy rationale can be interpreted to support strict liability prosecutions for misdemeanor securities fraud, and to impose felony liability only for reckless violations of the statute. (919)
I have already noted that the Martin Act is in need of a thorough review, but Izant makes a strong case that strict liability under the act is on shaky grounds both as a legal and policy matter.
Izent notes that the Martin Act is a powerful club for the NY Attorney General to wield. Because those under investigation fear it so and typically choose to settle, there is little case law to guide our understanding of its reach. Indeed, the New York Court of Appeals has never directly addressed the mens rea element of a Martin Act violation and Izant argues that lower courts have also not addressed it satisfactorily. Because of this, Izant concludes that the Martin Act poses dangers to the rule of law, particularly when the citizenry is calling for blood after a financial crisis.
Jean Martinet came to be a symbol of one “who demands absolute adherence to forms and rules.” The Martin Act poses a greater danger: in the wrong hands, it can demand absolute adherence to ambiguous rules that are only clearly articulated after the fact. The Martin Act is in need of legislative attention. Let us hope that some in the NY State Assembly or Senate agree.
March 27, 2013 | Permalink | No Comments
Connecticut Superior Court Recognizes MERS’ Status as Mortgagee and MERS’ Subsequent Assignee
In LaSalle Bank v. Johnson, No. CV‐085016113, 2009 WL 2872844 (Conn. Super. Aug. 10, 2009), the court recognized MERS’ status as mortgagee and MERS’ subsequent assignment of the mortgage. Fremont Investment & Loan loaned Ronald Johnson $192,000.00. To secure a loan from Fremont Investment & Loan, homeowner gave a mortgage to MERS. A foreclosure action against the homeowner was then commenced for unpaid water and sewer services and a judgment of foreclosure by sale was obtained. In that case, Fremont was named as a defendant but MERS was not. During the foreclosure sale, JMP emerged as the successful bidder and the deed was recorded under JMP. After the judgment of foreclosure by sale, MERS assigned its mortgage to LaSalle Bank. The court held that as assignee, LaSalle had standing to not only bring an action to foreclose its mortgage but it also entitled to summary judgment. Therefore, it upheld LaSalle’s contention that due to WPCA’s failure to name MERS as a party defendant, LaSalle is an omitted party and did not have its mortgage extinguished by the prior foreclosure action by WPCA and therefore, has standing to bring an action against JMP.
March 27, 2013 | Permalink | No Comments
March 26, 2013
Bransten Trio: Part Deux
As I work through the Bransten Trio of cases on misrepresentation in the securitization process, I am struck by the arguments of the defendants, arguments that do not seem to carry much weight with judges who hear them. In the Merrill Lynch case, the defendants (all Merrill-affiliated entities) “argue that it was not reasonable for plaintiffs, as sophisticated investors in the mortgage-backed security market, to rely on ‘unverified information.'” from the mortgage originators that was repeated by the defendants with the defendants making “no representations or warranties as to the accuracy or completeness of that information.”. (22)
This court, like others, does not treat “boilerplate disclaimers and disclosures” as Get Out of Jail Free Cards” for underwriters. (22) The court reviews a number of cases in which courts similarly refuse to treat such disclaimers as such, including
- Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 632 F.3d 762, 773 (1st Cir. 2011)
- In re Morgan Stanley Mortgage Pass-Through Certificates Litig., 810 F. Supp. 2d 650, 672 (S.D.N.Y. 2011)
- New Jersey Carpenters Vacation Fund v. Royal Bank of Scotland Group, PLC, 720 F. Supp. 254, 270 (S.D.N.Y. 2010)
- Pub. Employees’ Ret. Sys. of Mississippi v. Merrill Lynch & Co., Inc., 714 F. Supp. 2d 475, 483 (S.D.N.Y 2010)
- In re IndyMac Mortgage-Backed Sec. Litig., 718 F. Supp. 2d 495, 509 (S.D.N.Y. 2010)
It will be interesting to see how disclaimers will be modified to offer increased protection to underwriters in the future. Could an underwriter protect itself by saying that “there is a high likelihood that the representations and warranties contained in offering materials are false and intended solely to convince potential purchasers of the securities to purchase them?”
March 26, 2013 | Permalink | No Comments
