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
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
