Sixth Court of Appeals Clarifies Recording Fee Standing Issue
In Christian County Clerk, et al. v. Mortgage Electronic Registration Systems, Inc., et al., No. 12-5237 (6th Cir. 2013), the United States Sixth Circuit Court of Appeals heard a case on appeal from the United States District Court for the Western District of Kentucky. The case involved two county clerks suing MERS, its parent company (MERSCorp), and a number of financial institutions to collect the two counties’ lost recording fees as a result of MERS. The District Court dismissed the action under rule 12(b)(6) because the court found there is no private right of action under the relevant Kentucky statute that requires mortgage assignments be filed for recording with the county clerk’s office.
On appeal, the plaintiffs argued that the defendants either willfully or negligently violated Kentucky’s recording fee statute.
The court found that the Kentucky statutory scheme recognized three categories of persons protected under the recording fee statute: existing lienholders and lenders who record their security interests in the land to give notice of their secured status; prospective lienholders and purchasers; and property owners and borrowers whose loans have been satisfied. The court further found that the plaintiffs do not fall into the categories listed.
Next, the court rejected the plaintiff’s argument that officers charged with maintaining property records are within the class of persons protected by the statute. It found that the statute only permits causes of action for persons protected by statutes, not the public officers who administer the law.
The plaintiffs argued that the Kentucky legislature stated that its statutes “shall be liberally construed with a view to promote their objects and carry out the intent of the legislature.” However, the court found no indication in the legislative history that the legislature intended to protect county clerks so they rejected this argument as well.
The court then states that property owners and the Kentucky attorney general, “who presumably has the power to act to enforce the state’s statutes,” are parties that would have standing in this case.
The court then addressed the plaintiff’s claim of civil conspiracy and dismissed the claim because the cause of action required an underlying tort. In this case, since the negligence per se argument was dismissed, the civil conspiracy claim is dismissed as well.
Finally, the court dismissed the unjust enrichment claim because the action was based on the alleged willful violation of the recording statute, not on an implied contract as required for an unjust enrichment claim.
As a result, the court affirmed the district court’s dismissal of the case.
March 29, 2013 | Permalink | No Comments
March 28, 2013
Tennessee Court of Appeals Dismisses Homeowner Complaint as Unripe
In Mills v. First Horizon Home Loan Corp., No. W-2010-00310-COA-R3-CV, 2010 WL 4629610 (Tenn. Ct. App. Nov. 16, 2010), the court dismissed the homeowners complaint as unripe for declaratory judgment. It did not find that the mortgage would be unenforceable based on the involvement of MERS.
The appeal arose from a complaint to quiet title filed by the homeowners against First Horizon Home Loan Corporation MERS. The homeowners had two mortgages and asserted that, although the second mortgage held by First Horizon on their residence had been satisfied and the deed of trust released, First Horizon had failed to surrender the note as required by Tennessee Code Annotated § 47-3-501(b). Moreover, they were told that the second “note” was destroyed, therefore under Tennessee Code Annotated § 47-3-309, First Horizon had a burden to prove that the second mortgage was enforceable “when the note went missing.” The homeowners also argued that despite language in the deed of trust, MERS cannot be a beneficiary of the first mortgage deed because it never had a right to their mortgage note payments.
The court held that even though the complaint is styled as an action to quiet title, there is no suggestion that the homeowner’s title currently is encumbered other than by a mortgage which they do not deny executing. The second deed of trust securing the second mortgage has been released. The terms of the first mortgage are not in dispute, the mortgage is not in default, and no enforcement proceedings have been initiated against the homeowners. Therefore the action is actually in the nature of a declaratory judgment action that seeks to ascertain whether there is a right to enforce the first mortgage in foreclosure action. The court also found that the real question raised in this action is whether a potential foreclosure action or action to enforce the note upon default would be successful if the original note cannot be produced. Because this was not an enforcement proceeding or foreclosure action, the court found that the issue is not ripe for review where the note is not in default and no foreclosure or enforcement proceedings have been initiated against the homeowners.
March 28, 2013 | Permalink | No Comments
Bransten Trio: Part Tres
The last of the Bransten Trio of cases (previously, I wrote of Part Un and Part Deux) dealing with Allstate’s complaint against Morgan Stanley has some of the allegedly misrepresentative language at issues in such cases. A sampling includes
- “These mortgage loans may be considered to be of a riskier nature than mortgage loans made by traditional sources of financing . . .. The underwriting standards used in the origination of [these loans] are generally less stringent than those of Fannie Mae or Freddie Mac with respect to a borrower’s credit history and in certain other respects . . . . As a result of this less stringent approach to underwriting, the mortgage loans purchased by the trust may experience higher rates of delinquencies, defaults and foreclosures . . ..” (24)
- “It is expected that a substantial portion of the mortgage loans will represent” a DTI ratio exception, a pricing exception, a LTV ratio exception or “an exception from certain requirements of a particular risk category.” (25)
- The court noted that the Morgan Stanley defendants indicated that in connection with various MBS certificates they issued, “‘a significant number,’ ‘a substantial portion,’ or a ‘substantial number’ of the loans represented underwriting exceptions.” (25)
Justice Bransten found, as she did in the other two cases referenced above, that such warnings are “ineffective.” (26) She further notes that the defendants’ “statements are misleading to the extent that they imply that defendants would act in accordance with, rather that [sic] completely disregard, the results of their findings” from their reviews of the loans securing the MBS certificates at issue in the case. (29)
March 28, 2013 | Permalink | No Comments
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
