March 23, 2013
District Court of Arizona Finds MERS has Authority to Transfer a Lender’s Interest Under a Deed of Trust, Denies Plaintiffs’ Request for a Temporary Restraining Order
In Jones v. Wells Fargo Bank, CV11-0197-PHX-DGC, 2011 WL 683887 (D. Ariz. Feb. 18, 2011) reconsideration denied, CV11-0197-PHX-DGC, 2011 WL 767302 (D. Ariz. Mar. 1, 2011) the District Court of Arizona denied plaintiff/homeowners’ petition for a temporary restraining order, finding plaintiffs had failed to prove a likelihood of success on the merits of their case.
The Jones’ made five arguments in support of their petition for a temporary restraining order, the court addressed all five.
First, they alleged that the foreclosure documents created by Defendant Wells Fargo Bank did not include valid signatures. However their only evidence of this claim was complaints they had filed with the state’s Attorney General’s Office. The court found this was insufficient to show a likelihood of success on the merits.
Second, they argued that Wells Fargo was not a valid successor on the Deed of Trust or Promissory Note because MERS could not confer that status to Wells Fargo. The court disagreed, citing Blau v. America’s Servicing Co., 2009 WL 3174823 at *7 (D.Ariz., Sept. 29, 2009) for the proposition that “MERS is authorized to transfer a lender’s interest under a Deed of Trust and related documents.”
Third, plaintiffs argued Wells Fargo had already been paid in full on their Promissory Note. However, their only evidence of this claim was a stamp attached to a Deed of Trust that stated “pay to the order of Wells Fargo, NA, without recourse.” They did not explain how or by whom the note could have been paid in full. The court found this simply showed Wells Fargo’s right to receive payments.
Fourth, plaintiffs claimed that a complaint filed by the Arizona Attorney General against Bank of America in regards to mortgage fraud supported their TRO. Again, the court disagreed, finding claims against Bank of America irrelevant to plaintiffs’ claims against Wells Fargo.
Finally, plaintiffs claimed they did not understand when they signed the Deed of Trust that MERS could transfer their rights. However, the court pointed to the specific language in the Deed that stated MERS was a beneficiary to deny this claim as well. Further, since plaintiffs did not argue they were unaware that beneficiaries of a Deed of Trust could foreclose if payments were not made, the court concluded plaintiffs had failed to show a likelihood of success on the merits, and denied their request for a TRO.
March 23, 2013 | Permalink | No Comments
March 22, 2013
Goldilocks Homeownership
It has only been since the housing bust have we had a serious conversation about how much homeownership is just the right amount. Mostly, the federal government (under both Democrats and Republicans) has pushed for more, more, more without regard to whether more was better. Principled commentators on the Left (Paul Krugman, for instance) and the Right have rightly criticized this unthinking commitment to more, but it is very politically attractive to push policies that appear to benefit homeowners (read, voters).
Morris Davis has recently posted his Cato Institute policy analysis critique of federal homeownership policy to SSRN, Questioning Homeownership as a Public Policy Goal. Like others, he criticizes the extraordinary subsidization of homeownership through the significant tax benefits (such as the deductibility of mortgage interest on a personal residence) and financing subsidizes (through the FHA, Fannie and Freddie). But he also attempts to quantify the subsidy. He comes up with an estimate of $2.5 trillion.
While I agree with Davis that we oversubsidize homeownership, I am not sure that I am so convinced by the price tag he puts on it. This is because the class of homeowners overlaps so much with the class of taxpayers. It would be very interesting if he could refine his analysis more to see if federal homeownership subsidies effect a transfer from one group to another — that refinement could lead to an interesting fight in Congress.
I was also surprised that Davis did not rely at all on the work by Glaeser and Gyourko regarding the inefficiencies of federal housing subsidies given restrictive local land use policies. This work would support his overall argument — not only do we oversubsidize, but the subsidies don’t even help homeowners as much as we think they do.
Well, let’s see if Congress takes Krugman and Cato’s views under advisement as we chart a new direction for housing policy . . ..
March 22, 2013 | Permalink | No Comments
March 21, 2013
Borden and Reiss on Dearth of Prosecutions for Mortgage Misrepresentations
We published Cleaning Up the Financial Crisis of 2008: Prosecutorial Discretion or Prosecutorial Abdication? (paywall) today in the BNA Criminal Law Reporter. (You can also get a copy on SSRN or BEPress). It builds on things we have said here and here. In short, we argue
When finance professionals play fast and loose, big problems result. Indeed, the 2008 Financial Crisis resulted from people in the real estate finance industry ignoring underwriting criteria for mortgages and structural finance products. That malfeasance filled the financial markets with mortgage-backed securities (MBS) that were worth a small fraction of the amount issuers represented to investors. It also loaded borrowers with liabilities that they never had a chance to satisfy.
Despite all the wrongdoing that caused the financial crisis, prosecutors have been slow to bring charges against individuals who originated bad loans, pooled bad mortgages, and sold bad MBS. Unfortunately, the lack of individual prosecutions signals to participants of the financial industry that wrongdoing not only will go unpunished but will likely even be rewarded financially. Without criminal liability, we risk a repeat of the type of conduct that brought us to the edge of financial ruin.
Seems straightforward to us, but many other lawyers seem to disagree, including the outgoing Assistant Attorney General in charge of the Criminal Division, Lanny Breuer. He told the NY Times, “I understand and share the public’s outrage about the financial crisis. Of course we want to make these cases. … If there had been a case to make, we would have brought it. I would have wanted nothing more, but it doesn’t work that way.” More interesting stuff in the article.
March 21, 2013 | Permalink | No Comments
March 20, 2013
Texas District Court Found that Bank Had Standing because it had Promissory Note and Affidavit
In Santarose v. Aurora Bank FSB, No. H-10-0720 (S.D. Texas 2010), homeowners alleged wrongful foreclosure. The homeowner executed a promissory note in connection with a purchase money loan from Lehman Brothers Bank. The homeowners executed a deed of trust securing the payment of the Note. Homeowners assert that Aurora did not possess the original promissory note and therefore had no evidence that it loaned them any money. In addition, the Deed of Trust is a contract that homeowners have with themselves and can change at any time. Homeowners also asserted that MERS did not have standing to conduct the foreclosure. The court found that Aurora produced the original promissory note in open court and also submitted an affidavit attesting that Aurora/Lehman has been the sole owner of the Note since the inception of the loan. The Note lists Lehman Bank, Aurora’s predecessor in interest, as the “Lender” and defines “Note Holder” as “[t]he Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note . . ..” Therefore, the court held that there was no factual basis for homeowner’s suspicion that Aurora did not have the original promissory note as evidence of its loan to the homeowners.
March 20, 2013 | Permalink | No Comments
Washington District Court Holds that if MERS has a Beneficial Interest, the Designee can Initiate Foreclosure
In Daddabbo et al v. Countrywide Home Loans, No. C09‐1417‐RAJ, 2010 WL 2102485 (W.D. Wash. May 20, 2010), the court found that MERS had a beneficial interest in the note that the deed of trust secures. The court rejected the contention that MERS has no beneficial interest in the note, and that Recontrust therefore has no power as MERS’s designee to initiate a foreclosure action. The court found that the deed of trust, of which the court takes judicial notice, explicitly names MERS as a beneficiary. Since the deed of trust grants MERS not only legal title to the interests created in the trust, but the authorization of the lender and any of its successors to take any action to protect those interests, including the right to foreclose and sell the Property, the court found that Recontrust had standing to foreclose.
March 20, 2013 | Permalink | No Comments
Washington District Court Held that MERS was Properly a Beneficiary
In Vawter v. Quality Loan Service Corp. of Washington, 707 F.Supp.2d 1115 (W.D. Wash. Apr. 22, 2010), the court dismissed the homeowner’s claim on the basis that MERS was properly a beneficiary and entitled to effect sale of defaulted‐upon property. The homeowners applied for a loan to refinance their home. This culminated in the execution of an adjustable-rate note in the amount of $328,000 with Paul Financial, LLC. The note was secured by a deed of trust, which listed Paul Financial as the lender, MERS as the beneficiary, “acting solely as a nominee for Lender and Lender’s successors and assigns,” and First American Title Insurance Company as the trustee. The note was transferred from Paul Financial to Chase. The homeowners were notified that Homecomings Financial would begin servicing their loan. They were then told by Homecomings Financial that Washington Mutual Bank, which was subsequently acquired in part by Chase, would take over the servicing of their loan. The homeowners argued that when Chase obtained possession of the note they knew he was the “purported holder” and could not “properly ascertain its real role in connection with their mortgage loan.” The parties to the Deed of Trust also changed over time. MERS assigned its beneficial interest under the Deed of Trust to Chase. The homeowners acknowledged that MERS was listed on the Deed of Trust as holding the beneficial interest, but contested whether MERS was actually entitled to serve as the beneficiary, asserting that “[t]he entirety of MERS’ representations about its role and authority to act is false.” The court dismissed these claims and found that MERS was properly a beneficiary given the language in the note.
Moreover, the court looked at the Deed of Trust Act (“DTA”). In Washington, the DTA defines a dead of trust as a form of three-party mortgage. In 1965, the Washington legislature enacted the DTA which involving not only a lender and a borrower, but also a neutral third party called a trustee. Under the definition in the DTA, the court found that the homeowners failed to plead a viable claim under the DTA and Washington law. They stated that the cause of action, though styled in the complaint as a claim for wrongful foreclosure, is properly construed as a claim for wrongful institution of non-judicial foreclosure proceedings since the trustee’s sale was discontinued.
March 20, 2013 | Permalink | No Comments
Wisconsin Appellate Court Hold that Note and Mortgage are Both Transferred when Assignment is Made
In Countrywide Home Loan Servicing, LP v. Rohlf, No. 2009‐AP‐2330, 2010 WL 4630328 (Wis. App. Nov. 17, 2010), the court distinguished the decision of Landmark v. Kesler and held that the note and the mortgage are both transferred when assignment is made. The homeowners appealed from judgments of foreclosure on their homestead in Winnebago County and property they owned in Green Lake County. They argued that Countrywide Home Loans Servicing LP did not establish that it was the holder of the note and mortgage on the Oshkosh home. The court found that because the mortgage designates MERS as the mortgagee and nominee of American Sterling Bank, the lender, MERS was allowed to act as American Sterling Bank and assign the mortgage to Countrywide. In addition, the court held that the note and mortgage are to be construed together even if the note and mortgage are sold one or more times because the assignment of mortgage transfers both the note and mortgage. Since the homeowners presented no evidence to refute the assignment of both the note and mortgage to Countrywide and also failed to establish that MERS designation as nominee for American Sterling Bank did not include authority to assign the note, the court found that Countrywide had standing to foreclose.
March 20, 2013 | Permalink | No Comments
