March 14, 2013
FIRREA Factors for Determining Civil Penalties
Andrew Schilling, Ross Morrison and Michelle Rogers wrote a short article (here, behind a paywall) about a recent case, U.S. v Menendez, No. C.V. 11-06313 (C.D. Cal. Mar. 6., 2013) that sets forth the eight factors that are to govern the determination of civil penalties under FIRREA. Menendez had defrauded HUD by lying on a form submitted to HUD as to the existence of any “hidden terms or special understandings” relating to the underlying short sale transaction. (3) The court stated that the relevant factors are
- the good or bad faith of the defendant and the degree of his or her scienter;
- the injury to the public and loss or risk of loss for other persons;
- the egregiousness of the violation;
- the isolated or repeated nature of the violation;
- the defendant’s financial condition and ability to pay;
- the criminal fine that could be levied for the conduct;
- the amount the defendant sought to profit through the fraud; and
- the penalty range available under FIRREA. (10-13)
The case is important because it provides guidance, which has been lacking, to courts as they apply this untested statute to civil fraud cases. And given that this case arose in the same jurisdiction in which the DoJ sued S&P, alleging violations of FIRREA, this guidance may be particularly useful. On the other hand, the facts of this case (dealing with one instance of fraud by one individual) are quite different from those that in the other cases that the government has brought pursuant to FIRREA, which typically involve allegations of fraud by large financial institutions.
As a side note, it is interesting that the federal government took full advantage of FIRREA’s ten year statute of limitations as it filed this suit in 2011 for actions that occurred in 2002.
March 14, 2013 | Permalink | No Comments
Michigan District Court Dismisses Mortgagor’s Claims to Void a Foreclosure Sale Because the Redemption Period Had Expired
In Duff v. Federal Nat. Mortg. Ass’n, No. 2:11-cv-12474, 2012 WL 692120 (E.D. Mich. Feb. 29, 2012), the District Court dismissed Mortgagor Plaintiff’s claims to void the foreclosure sale because Plaintiff failed to state a claim and the period of redemption had expired.
In 2007, Mortgagor Plaintiff refinanced his home with Quicken Loans, Inc., and MERS was the mortgagee. Subsequently, MERS assigned the mortgage to Defendant JP Morgan Chase Bank (“Chase”). Plaintiff defaulted and Chase initiated foreclosure by advertisement. “Plaintiff’s house was sold at a Sheriff’s Sale to Defendant Fannie Mae.” The Sheriff’s deed was executed and the six-month redemption period had ended when Plaintiff was served with a complaint to terminate Plaintiff’s tenancy of the property. Plaintiff then commenced an action asserting four separate claims, and Defendant moved for summary judgment.
Before dismissing each of Plaintiff’s claims individually, the District Court noted that Plaintiff lacks standing to bring any claim regarding this matter. Since Plaintiff commenced the lawsuit after the redemption period and did not show irregularity, “Plaintiff . . . lack[s] standing to challenge the foreclosure of, and his eviction from, the property.”
In Plaintiff’s first claim, Plaintiff, relying on Residential Funding v. Saurman, 805 N.W.2d 183 (Mich. 2011) and Bakri v. MERS, No. 297962, 2011 WL 3476818 (Mich. Ct. App. Aug. 9, 2011), argued that Defendant had no power to foreclose because the “assignment is not sufficient to establish a record chain of title as required by MCL §600.3204 since MERS did not have an interest to assign to Chase.” However, Bakri v. Mers relied on Residential Funding v. Saurman in reaching this conclusion. Later, Residential Funding v. Saurman was overturned on appeal. Accordingly, the Court here declined to follow Bakri v. Mers and dismissed this claim.
Counts Two, Three, and Four were similarly dismissed. Plaintiff claimed “defendants violated the Home Affordable Modification Program . . . under both a negligence theory (Count II) and a breach of contract theory (Count III).” These arguments both failed because the Home Affordable Modification Program provides no private right of action. Lastly, Plaintiff asserted an equitable estoppel claim. The District Court dismissed this claim since it is a defense and cannot be asserted by a plaintiff in a cause of action.
March 14, 2013 | Permalink | No Comments
Michigan Court of Appeals Holds that Foreclosure is Void Because Mortgagee Commenced the Foreclosure Before It Obtained an Interest in the Indebtedness
In Davenport v. HSBC Bank USA, 739 N.W.2d 383 (Mich. Ct. App. 2007), the Court of Appeals held that the foreclosure was void ab initio because Assignee Defendant did not have an interest in the indebtedness secured by the mortgage when it commenced the foreclosure proceedings.
Mortgagor Plaintiff executed a mortgage. “The initial mortgagee assigned its interest to another entity, which in turn assigned the mortgage to defendant on October 31, 2005.” Plaintiff defaulted on the mortgage and “Defendant initiated foreclosure proceedings, publishing its first notice on October 27, 2005.” At the sheriff’s sale, Defendant purchased the property. Plaintiff commenced a lawsuit in order to have the foreclosure voided and “any continuing proceedings enjoined, on the ground that defendant published its first notice of foreclosure several days before it actually acquired its interest in the indebtedness.” The trial court granted summary judgment in favor of the Defendant. Plaintiff appealed.
The Court of Appeals held that the trial court erred in granting summary judgment in favor of the Defendant, and that “the foreclosure proceedings were void ab initio.” According to MCL §600.3204(1)(d), the foreclosing party must be “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, Defendant admitted it did not own the mortgage when it commenced the foreclosure. Further, this “is not a mere notice defect,” which would render a foreclosure by advertisement voidable. Rather, “it is a structural defect that goes to the very heart of defendant’s ability to foreclose by advertisement in the first instance.” Accordingly, the foreclosure was void ab initio.
Note: This case was abrogated by Kim v. JPMorgan Chase Bank.
March 14, 2013 | Permalink | No Comments
Michigan District Court Grants MERS’s Motion for Summary Judgment because, as Mortgagee, MERS had Standing To Foreclose
In Corgan v. Deutsche Bank National Trust Co., No. 1:09-cv-939, 2010 WL 2854421 (W.D. Mich. July 20, 2010), the District Court granted MERS’s motion for summary judgment because MERS had the right to foreclosure as “Mortgagee” pursuant to the mortgage documents.
Mortgagor Plaintiff executed a loan agreement with the note naming MERS as the “Mortgagee” and Decision One Mortgage Company as “Lender.” The note was transferred to Deutsche Bank. Later, Mortgagor Plaintiff signed a modification agreement. Then, Mortgagor Plaintiff defaulted on the note and MERS commenced foreclosure proceedings and was eventually granted a sheriff’s deed. Plaintiff claims that MERS had no standing to initiate foreclosure proceedings since it is not the owner of the mortgage note.
The Court concluded that Plaintiff agreed that MERS had the right to foreclose on the property because such right was expressly stated in the mortgage, and was not changed by any subsequent change in ownership. Thus, the Court granted summary judgment in favor of MERS.
March 14, 2013 | Permalink | No Comments
Michigan Appellate Court Holds that Party with Ownership of an Interest in the Note May Only Foreclose by Judicial Process
In Bakri v. MERS, No. 297962, 2011 WL 3476818 (Mich. Ct. App. Aug. 9, 2011), the Court of Appeals held that Defendants may only foreclose by judicial process since they only had an ownership interest in the note, and not an ownership interest in the indebtedness secured by the mortgage.
In 2004, Mortgagor Plaintiff entered into a loan with America’s Wholesale Lender and granted Defendant MERS a mortgage on the property. MERS assigned the mortgage to Defendant Bank of New York Mellon. Mortgagor Plaintiff defaulted and Defendant Trott & Trott served a Notice of Mortgage by Foreclosure Sale. Mortgagor Plaintiff filed an action to quiet title to the property and invalidate the mortgage it granted to MERS and the assignment of the mortgage to Defendant Bank of New York Mellon. Defendants moved for summary disposition. The trial court granted the motion and Plaintiff appealed.
The Court of Appeals reversed the Trial Court’s decision, which granted summary judgment in favor of the Defendants. The Court stated that the mortgage and the assignment thereof were valid, but Defendants only had the power to foreclose by judicial process and not by advertisement. The mortgage plaintiff granted to MERS stated that “MERS had the power to assign the mortgage and that MERS and its assigns had the power to sell the property…(and) MERS could foreclose on the property.” However, “[b]ecause defendant Bank of New York Mellon did not possess an interest in the indebtedness, it was not authorized to foreclose by advertisement on plaintiff’s property . . . . Instead, defendant Bank of New York Mellon must seek to foreclose by judicial process.” (citing Residential Funding Co., LLC v. Saurman, 292 Mich. App. 321 (2011).
Notes: (1) Duff v. Federal Nat. Mortg. Ass’n, No. 2:11-cv-12474, 2012 WL 692120 (E.D. Mich. Feb. 29, 2012) declined to follow this case. (2) Residential Funding Co., LLC v. Saurman, 292 Mich. App. 321 (2011), was cited by this case, but was overturned on appeal in Residential Funding v. Saurman, 805 N.W.2d 183 (Mich. 2011).
March 14, 2013 | Permalink | No Comments
In Cooke v. Mortgage Electronic Registration Systems, Inc., et al., CA No. PC 2011-3487 (R.I. Sup. August 29, 2012), the plaintiff alleged that the assignment of the mortgage interest from MERS to the Federal National Mortgage Association, FNMA, was invalid. As a result, the plaintiff argued that FNMA did not have the statutory power of sale and lacked standing to foreclose. The court addressed the defendant’s motion to dismiss in this opinion.
The court found that both the allegations and the mortgage agreement executed were similar to Payette. As result, the court adopted the reasoning in Payette and ultimately dismissed the claims that were similar. The court found that regardless of the plaintiff’s criticism of the Superior Court’s precedent, the court will follow it until “the Rhode Island Supreme Court determines that this Court’s previous analysis is inconsistent with its view of applicable Rhode Island law.”
The court also found the plaintiff’s reliance on case law from other jurisdictions was neither controlling nor persuasive. The plaintiff argued that a Supreme Court decision, Carpenter v. Longan, 83 U.S. 271 (1872), where the Supreme Court held that the note and mortgage is inseparable under Colorado law, should be applicable. However, the court noted that the Rhode Island General Laws permit the separation of the note and mortgage. In addition, the plaintiff also relied on Eaton v. Fed. Nat’l Mortg. Ass’n, No. 1-1382, 2011 WL 3322892 (Mass. Super. June 17, 2011), which held that the note and mortgage must be held to properly foreclose under Massachusetts law. However, this is not binding on the Rhode Island courts, which have precedent that “the assignment of the mortgage containing the language of the mortgage considered [in this case] does not create a fatal disconnect between the note and the mortgage.” In addition, the court found that there was no case law or statutory law that required the foreclosing party needs to hold both the note and mortgage to properly foreclose.
As a result, the court granted the defendant’s motion to dismiss.
March 14, 2013 | Permalink | No Comments
March 13, 2013
MERS-Y! MERS-Y!
Dustin Zacks has posted Revenge of the Clerks: MERS Confronts County Clerk and Qui Tam Lawsuits, a short article that reviews litigation brought by “county clerks and private qui tam actions assert that MERS has cheated county recorders out of millions of dollars in recording fees.” (17) Zacks writes that “the most imminent legal threat to MERS is the spate of lawsuits filed by county clerks” and that “[c]ommon to most clerk lawsuits is their assertion that all changes in beneficial ownership of home loans are required to be recorded in the public records.” (18) He reviews the arguments raised in those suits:
- State Laws Required All Assignments to be Recorded
- MERS Uses Deceptive Language to Avoid Recording
- Unjust Enrichment, MERS is Evil, and Other Such Arguments (18-19)
Zacks notes that nearly all of those cases have failed to survive a motion to dismiss, with one exception. (20) A Pennsylvania court held that Pennsylvania’s statute “was unambiguously clear in requiring assignments to be recorded”. (20); see Memorandum and Order, Montgomery County, PA Recorder of Deeds v. MERSCORP, Inc. , No. 11-cv-6968 (E.D. Pa. Oct. 19, 2012) at 12-15.
While Zacks is skeptical of this type of anti-MERS suit, he notes that
banks and their advocates must remain wary of these seemingly unending matters. Just as the tobacco lawsuits were initially met with skepticism and ridicule, one large win was all it took to turn regular routs into an industry-changing victory. Here, one verdict in favor of a clerk in a class-action suit could result in a ruling that MERS must go back and, for example, record innumerable assignments or pay millions of dollars in avoided recording fees. This, in turn, could result in a new appraisal of the viability of MERS’ manner of business. (21)
This seems to be the right assessment of where things stand.
March 13, 2013 | Permalink | No Comments
