March 18, 2013
Defendant’s Motion to Dismiss Plaintiff Homeowner’s Claims Granted. Claims Dismissed with Prejudice for Lack of Good Faith
In Ruiz v. Suntrust Mortg., Inc., 2012 U.S. Dist. LEXIS 103239 (E.D. Cal. July 24, 2012), Plaintiff Florida Ruiz brought action against Sun Trust Mortgage, Inc. (SunTrust), MERS, Fannie Mae, and the Wolf Law Firm to challenge the foreclosure of her Bakersfield, California property. Defendants SunTrust, MERS, and Fannie Mae filed a F.R.Civ.P. 12(b)(6) motion to dismiss the claims brought against them.
Plaintiff had taken out two loans from SunTrust secured by deeds of trust (DOT) in April 2007 with MERS identified as beneficiary under both. Following default and failure to cure, Plaintiff’s property was sold at foreclosure in March 2010, though the sale was rescinded. In August 2011, MERS assigned its interest in the first DOT to Sun Trust. In September 2011, the Wolf Law Firm, acting as trustee, recorded a second notice of default and substituted as trustee. The Wolf Law Firm recorded a notice of trustee’s sale of the property in February 2012.
There were many claims within the Plaintiff’s complaint, which are detailed below.
1) Wrongful Foreclosure Claims:
Failure to Tender: Plaintiff alleged that SunTrust, via the Wolf Firm, did not have authority to initiate foreclosure proceedings, because MERS was the proper beneficiary of the deed of trust. The court noted that to properly challenge a foreclosure proceeding, Plaintiff was required to tender the amount owed on her loan, “nothing short of the full amount due the creditor.” Rauer’s Law etc. Co. v. S. Proctor Co. 40 Cal.App. 524,525, 181 P. 71 (1919). As the record demonstrated that Plaintiff had defaulted, failed to cure, and no evidence was proffered to demonstrate a tender offer, Plaintiff’s attempt to stop foreclosure based on MERS’s alleged status was an “empty remed(y), not capable of being granted.”
Foreclosure Irregularities: Plaintiff alleged that foreclosure irregularities should preclude foreclosure. In California, a lender may proceed with non-judicial foreclosure when a default occurs and the deed of trust contains a power of sale clause. McDonald v. Smoke Creek Live Stock Co., 209 Cal. 231, 236-237, 286 P. 693 (1930). Per Cal Civ Code § 2924, a “trustee, mortgagee or beneficiary of authorized agents” can conduct the foreclosure. There is a presumption that a foreclosure “(is) conducted regularly and fairly.” Melendrez v. D & I Investment, Inc., 127 Cal.App.4th 1238, 1258, 26 Cal.Rptr.3d 413 (2005).
Robo-Signing: Specifically, Plaintiff claimed that MERS Vice President Mr. Mitchell “robo-signed” various documents. The court stated that Plaintiff failed to establish statutory violations such an action would violate, or how such an action, if it occurred, would prevent foreclosure.
Standing: Plaintiff also boldly claimed that Defendants did not have proper standing to foreclose, because the foreclosure sale of her property in March 2010 had divested Defendants of an interest in the property. As the March foreclosure was rescinded and Plaintiff claimed no other irregularities, Plaintiff’s standing allegations were unconvincing.
Securitization / Original Note: Plaintiff alleged that Defendants’ securitization of the loan was unlawful and thereby precluded foreclosure – an argument the court found unsupported by law and case history. Similarly, Plaintiff’s argument that Defendants needed the original note and joint possession of the note and deed of trust to foreclose was not substantiated by California law.
MERS Authority: Plaintiff claimed that MERS lacked authority to execute certain documents relating to the transfer of the mortgage note. The court stated that prejudice is required to prevent a wrongful foreclosure. “Prejudice is not presumed from mere irregularities in the process.” Meux v. Trezevant, 132 Cal. 487, 490, 64 P. 848 (1901). As Plaintiff failed to allege the prejudice she suffered from foreclosure, given her loan obligations, such a claim does not preclude foreclosure.
2) Fraud:
Plaintiff’s second claim alleged that Mr. Mitchell fraudulently signed a deed of trust claiming to be a MERS employee when employed by SunTrust. The elements of a fraud claim in California are: (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud; (4) justifiable reliance; and (5) resulting damage. Lazar v. Superior Court, 12 Cal.4th631, 638, 49 Cal.Rptr.2d 377 (1996). Fraud claims are also subject to the heightened pleading standard under F.R.Civ.P. 9(b). Plaintiff’s conclusory allegations not only failed to meet the burden of the heightened standard, but also lacked facts or specifics to support the basic elements of a fraud claim.
3) Slander of Title:
Plaintiff’s third claim alleged that Defendants slandered the title of her property, through preparing, publishing and recording documents including the notice of trustee’s sale and trustee’s deed, actions Defendants knew were improper. The court noted that Plaintiff failed to allege facts to support slander of title claim, because, among other reasons, the documents sent to defendant were not false given her default.
4) Quiet Title:
Plaintiff’s fourth claim, to quiet title, was also found by the court to be lacking. Quiet title claims first require plaintiff to allege that she is the rightful owner of the property. Kelley v. Mortgage Electronic Registration Systems, Inc., 642 F.Supp.2d 1048, 1057 (N.D. Cal. 2009). As the Plaintiff was in default and could not pay the amount owed, her claim to quiet title failed.
5) Declaratory Relief:
Plaintiff’s fifth claim was for declaratory relief. The court noted that since declaratory relief is not an independent claim, and no viable claim existed, relief could not be granted.
6) California Civil Code Violation:
Plaintiff’s sixth claim alleged violations of Cal Civ Code § 2932.5, resulting from Fannie Mae’s failure to record its interest in the deed of trust. The court ruled that a deed of trust assignment is not required for a judicial foreclosure, Plaintiff lacked standing to challenge the transfer, and Plaintiff offered no support for any claim under Cal Civ Code §2932.5.
7) Unfair Competition Claim:
Plaintiff’s seventh claim alleged various violations of California’s Unfair Competition Law, but failed to support such allegations with facts required for UCL relief. The court conveyed that any alleged damages suffered by the Plaintiff were “self-inflicted” as they resulted from her default.
8) Punitive Damages:
Plaintiff’s eighth claim, for punitive damages, failed because this assertion was unsupported by facts and nothing sufficient in the complaint alleged anything sufficient to impose punitive relief.
The court dismissed the complaint with prejudice and denied Plaintiff the right to amend. The court determined that Plaintiff brought this action in the absence of good faith solely to delay the foreclosure of her property, as evidenced by untrue material allegations of fact in its complaint. The court ordered Plaintiff to file papers with the court within a week to show why claims against the remaining defendant, the Wolf Law Firm, should not be dismissed. As Plaintiff did not do so, in Ruiz v Suntrust Mortg. Inc., CV F 12-0878 LJO BAM, 2012 WL 3150081 [ED Cal Aug. 1, 2012], the court dismissed the complaint against the Wolf Law Firm.
March 18, 2013 | Permalink | No Comments
Plaintiff Denied Summary Judgment in Foreclosure Proceedings Due to Factual Dispute
In Bayview Loan Servicing v Sanchez, CV 09 5004156 S, 2009 WL 1874180 [Conn Super Ct June 10, 2009], an unpublished opinion, Plaintiff Bayview Loan Servicing moved for summary judgment against non-appearing Defendant Pedro Sanchez in a foreclosure action. The town of Windham (Defendant), holder of two mortgages on the property, objected – claiming a factual dispute as to whether its mortgages were subordinate to Plaintiff’s mortgages.
In July 2006, Mr. Sanchez delivered an executed note to USMoney Source Inc. doing business as Soluna First (US Money) for a loan and secured the note through a mortgage delivered to MERS as nominee for USMoney. Plaintiff claimed that its mortgage was prior in right to two granted to Sanchez, recorded in 2001, via a subordination agreement.
The burden in summary judgment proceedings is on the moving party to prove both that no genuine issues of material fact exist and that it is entitled to judgment as a matter of law. Curry v. Allan S. Goodman, Inc. 286 Conn. 390, 402, 944 A.2d 925 (2008). Plaintiff submitted into evidence “… copies of the subordination agreement, certified copies of the note, the mortgage, the assignment of mortgage, and the default letter…”
Defendant claimed its mortgages were not subordinate to the mortgage being foreclosed by Plaintiff because it only agreed subordinate its mortgages to an entity known as “US Money Source DBA Soluna First Mortgage, its successors and assigns” and not to a mortgage “granted by Sanchez to MERS as a nominee for USMoney.”
The court described that the term nominee “connotes the delegation of authority to the nominee in a representative capacity only, and does not connote the transfer or assignment to the nominee of any property or ownership rights…” Mortgage Electronic Registration Systems, Inc. v. Rees, Superior Court, Judicial District of Ansonia-Milford, Docket no, CV 03 081773 (September 4, 2003, Curran, J.T.R.). As such, the court ruled that USMoney was the “true lender.”
However, as there was a factual discrepancy between the mortgage deed (listing lender as USMoney Source, Inc. d/b/a Soluna First) and the subordination agreement (listing mortgagee as US Money source dba Soluna First Mortgage), the court found that a genuine issue of material fact existed. Plaintiff failed to meet its burden and the court denied summary judgment.
March 18, 2013 | Permalink | No Comments
March 16, 2013
Utah District Court Holds that MERS Has Authority to Assign Beneficial Interest and that Assignee Has Power to Initiate Non-Judicial Foreclosure
In King v. American Mortgage Network, No. 1:09 CV 125 TS, 2010 WL 3222419 (D. Utah Aug. 16, 2010), the United States District Court of Utah granted Defendant’s motion to dismiss Plaintiff’s claims. In November 2007, Plaintiff received a loan for $112,000 from American Mortgage Network, Inc. (“AmNet”) to purchase property in Ogden, Utah. In connection with the loan, the plaintiff signed a promissory note. Plaintiff’s loan with AmNet was secured by a deed of trust. MERS was designated as the beneficiary of the deed of trust and nominee for AmNet and its assigns. The deed of trust stated that 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 cancelling this Security Instrument.” In February 2008, AmNet sold the loan to Fannie Mae. On July 7, 2009, MERS assigned its beneficial interest under the deed of trust to Chase. Plaintiff defaulted under terms of the loan, and Chase caused the property to be foreclosed.
The plaintiff first alleged that Defendant Chase violated the Real Estate Settlement and Procedures Act (“RESPA”) by failing to respond to a qualified written request, namely letters sent from Plaintiff’s former counsel. The court, however, held that it did not have to determine the validity of the RESPA claim because the plaintiff did not allege any actual damages resulting from the failure to respond or delay in responding to the qualified written request, which is a requirement of RESPA.
Plaintiff also brought forth a quiet title claim “based on the allegation that the Note and Trust Deed have been split.” The court rejected this claim as well due to the fact that the plaintiff provided no evidence showing that the note and deed of trust were split.
Finally, the plaintiff argued that Chase “did not have the authority to foreclose the Trust Deed on the Property.” The court rejected this claim and found that MERS had “authority to initiate foreclosure proceedings, appoint a trustee, and foreclose and sell the property.” In the case at hand, MERS assigned its beneficial interest under the deed of trust to Chase. Thus, Chase had authority to foreclose.
March 16, 2013 | Permalink | No Comments
Tenth Circuit Holds that MERS Has Authority to Assign Trustees After the Promissory Note Has Been Securitized and that Those Assignees Can Initiate Non-Judicial Foreclosure; Plaintiffs’ TILA Claims Were Time Barred
In Tadehara v. Ace Securities Corp. Home Equity Loan Trust Series 2007 HE4, 2012 WL 2581037, the United States Court of Appeals for the Tenth Circuit dismissed the plaintiffs’ quiet title claim and TILA claim. On February 8, 2007, the plaintiffs obtained a loan secured by a mortgage on their house in Murray, Utah. They gave a promissory note secured by a deed of trust to DB Home Lending. MERS was designated as the beneficiary of the deed of trust and as nominee for the lender and the lender’s assigns as well as “the successors and assigns of MERS.” The deed of trust gave MERS authority to foreclose and sell the property. MERS subsequently assigned the deed of trust on two separate occasions in 2009. The promissory note itself was sold by the lender and securitized in 2007. On August 27, 2009, the plaintiffs sent a notice of rescission claiming that DB Home Lending failed to provide required disclosures under TILA. Plaintiffs then stopped paying their mortgage, and the trustee, assigned by MERS, sent them a notice of default and initiated foreclosure.
In bringing forth a quiet title claim, the plaintiffs relied on Utah Code Ann. § 57-1-35, which states, “The transfer of any debt secured by a trust deed shall operate as a transfer of the security therefor.” The plaintiffs claim that under the statute, once the promissory note was transferred, the benefit of the deed of trust was transferred to the holder of the note, and only the holder of the note or its agent can transfer the beneficial interest in the deed of trust. According to the plaintiffs’ interpretation of the statute, MERS had no power to assign beneficial interest of the deed of trust because it did so when DB Home Lending no longer held the note. Thus, if the plaintiffs’ contentions were true, this would mean that those assigned beneficial interest by MERS had no authority to foreclose on the property in question.
The court, however, disagreed with the plaintiffs. In doing so, it pointed to prior case law that found § 57-1-35 “does not operate to strip the beneficiary of a Deed of Trust or its assigns of the power to foreclose on the secured property on behalf of the original lender or any of its assignees.” In the case at hand, “an assignee of the Deed of Trust foreclosed on behalf of an assignee of the note.” So, MERS had standing to assign a trustee and that trustee had authority to foreclose on behalf of DB Home Lending’s assignee. The quiet title claim was accordingly dismissed.
The plaintiffs also argued for relief under TILA. They asserted that they were not provided proper disclosures under TILA and that their loan was a consumer credit transaction subject to TILA’s rescission remedy under 15 U.S.C. § 1635. The court dismissed this claim as well, stating that plaintiffs’ action was outside of the statute of limitations because they failed to file the TILA action within three years of consummating their loan transaction. The loan in question was made on February 8, 2007 and the action was filed on May 9, 2011. The court found that the plaintiffs’ notice of intent to rescind, which was sent to the lender in August 2009, was irrelevant for statute of limitations purposes. Thus, the TILA claim was dismissed.
March 16, 2013 | Permalink | No Comments
Hawaii District Court Dismisses Homeowner Plaintiff Claims Against Defendants For Lack of Factual Support and Legal Authority
In Phillips v BAC Home Loans Servicing, LP, CV 10-00272DAE-LEK, 2010 WL 5146433 [D Haw Dec. 13, 2010], Plaintiff Mark Phillips filed a complaint on May 7, 2010 against Defendants BAC Home Loans Servicing, MERS, and Does 1 – 20 relating to the mortgage loan and foreclosure proceedings surrounding his property in Kihei, Hawaii. On September 8, 2010, Defendants filed a motion to dismiss for failure to state a claim upon which relief can be granted.
The court, pursuant to Local Rule 7.2(d) ruled upon the matter without a hearing and granted Defendants’ motion to dismiss.
The first four counts of Plaintiff’s complaint alleged various Truth in Lending Act (TILA) violations: “1) unfair trade practices involving noncompliance under TILA; 2) failure to obtain signed loan documents in violation of TILA; 3) failure to give a three-day cooling period in violation of TILA; 4) failure to give conspicuous writings in violation of TILA.”
The court ruled that Plaintiff’s claim for rescission, under 15 U.S.C. §1635, was time barred, as more than three years had lapsed since the consummation of the sale of property. Equitable tolling does not apply to rescission claims. The court also found that Plaintiff’s claim for damages and attorney fees, under 15 U.S.C. §1640, was time barred by a one-year statute of limitations; Plaintiff never alleged facts to support an equitable tolling claim.
The court also dismissed Plaintiff’s claim for recoupment of damages, under 15 U.S.C. §1640. The court noted that for Plaintiff’s claim to survive the one-year TILA statute of limitations, the recoupment claim had to be a “defense in an action to collect a debt.” 15 U.S.C §1640(e). Plaintiff not only failed to provide legal authority for claiming that a “nonjudicial foreclosure is an action to collect a debt within the meaning of TILA,” the district courts within the circuit had ruled to the contrary.
Plaintiff’s fifth claim alleged that Defendants were in violation of the Unfair and Deceptive Trade Practices Act, under Haw.Rev. Stat §480-2, §480-13. The court ruled that the plaintiff’s claims were conclusory allegations unsupported by facts and granted Defendants’ motion to dismiss.
Similarly, the court granted Defendants’ motion to dismiss Plaintiff’s sixth claim, for “declaratory judgment regarding fraud,” and eighth claim, for violations of the implied covenant of good faith and fair dealing, as Plaintiff failed to provide factual support or particularity in its claim.
The court also granted Defendants’ motion to dismiss Plaintiff’s seventh claim for injunctive relief, and eleventh claim for punitive damages, as the court reasoned that neither claim could stand alone.
The court dismissed Plaintiff’s ninth claim, for equitable estoppel, because the court was “unclear” as to how the Plaintiff wanted it to “utilize the doctrine of equitable estoppel” relating to Defendants’ allegedly fraudulent paperwork.
Plaintiff’s tenth claim alleged negligent infliction of emotional distress and intentional infliction of emotional distress (NIIED) and intentional infliction of emotional distress (IIED). The court noted that for the NIIED claim, Plaintiff never proffered a physical injury. With regard to the IIED claim, the court stated that Plaintiff failed to present evidence to support any element of an IIED claim. The court granted Defendants’ motion to dismiss these claims.
Lastly, Plaintiff made a series of additional claims, such as violations of the Equal Opportunity Act and the Gramm leach Bliley Act, for failing to provide documentation. Plaintiff did not provide any information detailing what provisions of these laws were violated. Plaintiff also asserted that Defendants could not enforce the mortgage and note provisions because they did not possess the original note, but provided no legal or evidentiary support for these claims. The court granted Defendants’ motion to dismiss these claims.
The court granted Plaintiff 30 days to amend any claims not specifically time barred.
March 16, 2013 | Permalink | No Comments
March 15, 2013
United States Court of Appeals Holds that MERS has Standing to Foreclose on Homeowner’s Property because the Promissory Note, Mortgage, and Assignment were Valid and Homeowner Defaulted on His Loan
In Yuille v. Am. Home Mortg. Services, Inc., 483 F. App’x 132 (6th Cir. 2012), the United States Court of Appeals Sixth Circuit held that homeowner’s quiet title claim failed because the note, mortgage, and assignment were valid and the homeowner defaulted on his loan.
Bruce Yuille obtained a $3.6 million loan secured by a mortgage on his residence. After Yuille defaulted on the loan, foreclosure proceedings began. Thereafter, Yuille filed a complaint against American Home Mortgage Services, Inc. (AHMSI), MERS, Duetsche Bank National Trust Company, and Oakland County Sheriff Michael J. Bouchard, seeking to stop the foreclosure and the scheduled sheriff’s sale. AHMSI removed the case to district court asserting diversity of citizenship, cancelled the sheriff’s sale, and stated that they would forego foreclosure until the conclusion of this litigation. The District Court granted Sheriff Bouchard’s motion to dismiss.
Yuille’s amended complaint asserted: 1) an action to quiet title; 2) defamation; 3) a violation of the Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act; and 4) a violation of the Michigan Consume Protection Act. Following discovery, Yuille and Defendants filled cross-motions for summary judgment. The District Court adopted the magistrate judge’s report and recommendation and granted Defendants’ motion for summary judgment. Yuille then appealed, only addressing the dismissal of his quiet-title claim.
The court held that Yuille was foreclosed from equitable relief under the unclean-hands doctrine because Yuille: 1) received $3.6 million in exchange for the note and mortgage, 2) failed to pay that debt as he agreed, and 3) then sought judicial assistance in avoiding his contractual obligations. In addition, Yuille’s quiet-title claim failed on the merits. Under Michigan law, the plaintiff bears the burden of proof in an action to quiet title; once the plaintiff makes a prima facie case of title, then the Defendants have the burden of proving superior right of title in themselves. Yuille claims that he established a prima facie case by presenting a certified copy of the warrant deed at the hearing before the magistrate judge.
The court, however, did not find the deed in the record. In addition, the court noted that “1) Yuille signed the note and mortgage, both of which identified the lender as American Brokers Conduit; 2) under the terms of the mortgage, Yuille mortgaged the property to MERS, as nominee of ABC and ABC’s successors and assigns, and to MERS’s successors and assigns; 3) Yuille failed to make payments as the note required; and 4) Deutsche, as trustee for the GSR Trust, is currently in possession of the note, which is endorsed in blank by ABC.” Defendants presented evidence that MERS assigned the mortgage to Deutsche, as trustee for GSR Trust. The court stated that any defect in the written assignment of the mortgage would make no difference where both parties to the assignment ratified the assignment by their subsequent conduct in honoring its terms. And since Yuille was a stranger to the assignment, he lacked standing to challenge its validity.
Thus, even if Yuille acted with clean hands, his quiet title claim failed. “The record established a valid note and mortgage, both of which had been assigned to Deutsche, as trustee for the GSR Trust, as well as Yuille’s default.” Hence, the court affirmed the district court’s judgment in favor of the Defendants.
March 15, 2013 | Permalink | No Comments
Unhampered and HAMPered Mortgage Modifications
The National Consumer Law Center has issued a thorough report, At a Crossroads: Lessons from the Home Affordable Modification Program (HAMP), which also provides some guidance for the way forward after we get past the foreclosure crisis. The authors summarize their findings as follows:
The government’s Home Affordable Modification Program (HAMP) is our starting point. HAMP has reached more homeowners, and successfully modified more home loans, than any program in history. Created by the federal government in early 2009 as a temporary program in response to the foreclosure crisis, HAMP provided additional financial incentives to servicers and investors to modify mortgages at risk of ending in foreclosure. The result has been affordable, sustainable loan modifications that keep borrowers in their homes and maximize returns to investors. But HAMP fell short of its goals, which were inadequate to the scope of the crisis. HAMP has been justly criticized for its lack of transparency and its failure to provide for effective enforcement. (3)
Not pulling punches, the report squarely places responsibility for its failure on “one root cause: massive servicer noncompliance. Almost every official evaluation of HAMP has noted widespread servicer noncompliance and the concurrent failure of the U.S. Department of the Treasury (Treasury) to engage in meaningful enforcement.” (4) Given that millions more foreclosures are on the horizon, this failure must be rooted out.
The report identifies five principles for effective loan modification standards:
- Loan modification evaluations should be standardized, universally applicable to all loans and servicers, and mandatory for all loans before the foreclosure process can go forward.
- Loan modification terms must be affordable, fair, and sustainable.
- Hardship must be defined to reflect the range of challenges homeowners face.
- Transparency and accountability throughout the loan modification process are essential.
- Homeowners must be protected from servicers’ noncompliance. Good rules on paper are not enough. (4)
I am intrigued by some of the particular proposals, although I am not sure how they actually work in practice. For instance, the report states that “Provisions Must Be Made for Homeowners with Junior Liens and Others for Whom a Thirty-One Percent Monthly Mortgage Payment Is Not Affordable.” (58) At what point must we say that a particular situation is untenable? The report also proposes that “A Servicer’s Violation of Servicing Standards Should Constitute a Defense to a Foreclosure.” (63) While this would no doubt be great for current homeowners, it would also be a radical role change for the foreclosure process. If this idea gets any traction, it will be interesting to see the industry critique.
March 15, 2013 | Permalink | No Comments
