March 14, 2013
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
U.S. 9th Circuit Court of Appeals Holds that Lenders Still Entitled to Repayment of Loans Even If MERS is Not a Beneficiary
In Cervantes v. Countrywide Home Loans, Inc., No. 09–17364 (U.S. 9th Cir. 2011), there was a putative class action challenging origination and foreclosure procedures for home loans maintained within the Mortgage Electronic Registration System (MERS). In their complaint, the plaintiffs allege conspiracies by their lenders and others to use MERS to commit fraud. They also contend that all transfers of the interests in the home loans within the MERS system are invalid because the designation of MERS as a beneficiary is a sham and the system splits the deed from the note, and, thus, no party is in a position to foreclose. The court reasoned found that MERS did not initiate foreclosure: the trustees initiated foreclosure in the name of the lenders. Even if MERS were a sham beneficiary, the lenders would still be entitled to repayment of the loans and would be the proper parties to initiate foreclosure after the plaintiffs defaulted on their loans. The plaintiffs’ allegations do not call into question whether the trustees were agents of the lenders. Although it is unclear from the pleadings who the current lender is on plaintiff Cervantes’s loan, the allegations do not raise any inference that the trustee Recontrust Company lacks the authority to act on behalf of the lender. Further, the notes and deeds are not irreparably split: the split only renders the mortgage unenforceable if MERS or the trustee, as nominal holders of the deeds, are not agents of the lenders.
March 13, 2013 | Permalink | No Comments
California Court of Appeals Holds that MERS and its Assignee have Standing to Foreclosure Without Holding Original Promissory Note
In Ferguson v Avelo Mortgage, LLC.,195 CA 4th 1618 (2011), the court held that MERS and its valid assignee, Avelo, had authority to initiate foreclosure proceedings and invoke the tender rule against Tenants, even when neither held the original promissory note. The owner had purchased home with New Century Mortgage Company as lender, Mortgage Electronic Registration Systems (MERS) as lender’s nominee and beneficiary under the deed of trust, and First American Title as trustee. Avelo Mortgage executed a substitution of trustee, replacing First American with Quality Loan Service Corporation. MERS then assigned its interest under the deed of trust to Avelo. The substitution of trustee (from First American to Quality) was recorded in 2007; on that same day, the notice of sale was recorded. Avelo purchased Home in a nonjudicial foreclosure sale in 2008. Court reasoned that the deed of trust specifically allowed MERS to initiate foreclosure proceedings. Under federal case law, it is not necessary that MERS or Avelo, as its assignee, have possession of the original promissory note as a precondition to a nonjudicial foreclosure under the deed of trust. The court characterized the argument that MERS or Avelo must have possession of the promissory note as a “legal loophole.”
March 13, 2013 | Permalink | No Comments
March 12, 2013
Alabama Circuit Court Holds that MERS has Standing to Foreclose if it is a Nominee of the Lender
In Henderson v. Merscorp Inc., No. 08-CV-900805 (Ala. Cir.Ct. May 6, 2010), the Alabama Circuit Court dismissed an action claiming that MERS lacked standing to foreclose. The borrower sued MERS after MERS initiated foreclosure proceedings after a default, and alleged that MERS lacked standing to foreclose. The borrower made claims for wrongful foreclosure, negligence, wantonness, and unjust enrichment. MERS moved for summary judgment, arguing that it had standing to foreclose because MERS is the mortgagee as nominee for the Lender and MERS holds the legal title to the note and mortgage. MERS’ attorney held physical possession of the note for MERS, and the note endorsed in blank. MERS also moved to dismiss plaintiff’s claims for negligence, wantonness, and unjust enrichment because MERS was not the servicer of the loan and was not responsible for collection, distribution, or application of plaintiff’s mortgage payments. Additionally, MERS argued that plaintiff’s wrongful foreclosure claim should be dismissed because no foreclosure sale had occurred or was scheduled, even though plaintiff had defaulted. The trial court granted MERS’ motion for summary judgment and dismissed the case. On plaintiff’s appeal, the Alabama Supreme Court affirmed the trial court without opinion. The Circuit Court also affirmed without opinion.
March 12, 2013 | Permalink | No Comments
