March 14, 2013
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
Texas Court of Appeals Holds that Foreclosure Proceedings Do Not Require Production of the Original Note
In Hornbuckle v Countrywide Home Loans, Inc., No. 02-09-00330-CV (TX Ct. App. 2, May. 19, 2011), the court affirmed a lower court decision allowing judicial foreclosure. The homeowners purchased home by obtaining an FHA loan from Principal Residential Mortgage, Inc. (PRMI). The homeowners signed a note and deed of trust both dated March 1, 2002. The lender was identified in both documents as PRMI, but the beneficiary in the deed of trust is Mortgage Electronic Registration Systems, Inc. (MERS) as the nominee for PRMI. In late 2003 or early 2004, servicing of the loan was transferred to Countrywide. Nothing in the record shows that the Hornbuckles were informed that PRMI sold the note and deed of trust to Massachusetts Mutual. But a letter to the Hornbuckles from Countrywide shows that the Hornbuckles knew PRMI had transferred servicing of the loan as of at least February 10, 2004 and that they knew Countrywide was the new servicer as of at least March 29, 2004. The homeowners filed a petition for bankruptcy on May 1, 2006 but the petition dismissed on October 11, 2007 without discharging any debts that were outstanding at that time. The court found that initiating foreclosure proceedings did not require production of the original note. A copy of the note containing an endorsement to Countrywide as payee as well as the assignment of the note and deed of trust to Countrywide for the benefit of Massachusetts Mutual, with recording information attached, was sufficient.
March 13, 2013 | Permalink | No Comments
Arizona Bankruptcy Court Imposes Duty on Attorney to Act with Reasonable Diligence
In In re: Madison, No. 2:09-bk-22225-SSC (Bankr. D. Ariz., March 30, 2011), the court held that an attorney has the duty to act with reasonable diligence in representing his client and communicating adequately with both the client and the court. The attorney here did not inform the court of his intentions to withdraw, instead he simply failed to perform the duties of representing his client. Nor did his client know of her own hearings and the status of her case. He did not withdraw appropriately from representation, and failed to act diligently and communicate adequately. The court concluded that he violated several ethical rules, and referred the matter to the Arizona state bar for further action.
March 13, 2013 | Permalink | No Comments
