March 11, 2013
Michigan Court Holds that Foreclosure Sale May Be Voidable When Assignee Does Not Record the Mortgage Before Foreclosure
In Kim v. JPMorgan Chase Bank, N.A., 825 N.W2d 329 (Mich. 2012), the court held that a foreclosure sale was voidable since the assignment of the mortgage to Defendant Bank was not recorded.
Mortgagor Plaintiffs executed a mortgage agreement with Washington Mutual Bank (“WaMu”) in 2007. In 2008, WaMu collapsed and its receiver, the Federal Deposit Insurance Corporation (“FDIC”), transferred the mortgage to JP Morgan Chase (the “Bank”) pursuant to a purchase and sale agreement. In 2009, Mortgagor Plaintiffs sought to modify the loan and a WaMu representative told them they were not eligible for a modification until they were three months in arrears. Accordingly, Mortgagor Plaintiffs stopped paying their mortgage in order to be eligible for a modification. Instead of modifying the loan, Defendant Bank foreclosed and sold the property to itself at a sheriff’s sale even though it had not recorded the mortgage assignment. Mortgagor Plaintiffs filed a lawsuit claiming they had received a loan modification and that Defendant Bank did not pay fair market value at the sheriff’s sale. Defendant Bank moved for, and was granted, summary judgment on the basis that the mortgage transfer was by operation of law. “As a consequence MCL 600.3204(3), which requires that a mortgage assignment be recorded before initiation of a foreclosure by advertisement, was inapplicable.” Plaintiffs appealed and the Court of Appeals held that the foreclosure sale was void ab initio because Defendant Bank did not obtain mortgage by operation of law and therefore had to comply with MCL 600.3204(3). Defendant appealed.
The Supreme Court of Michigan reversed the Court of Appeals’ decision in part and held that the foreclosure was “voidable, not void ab initio.” The Court stated that the transfer here was not by operation of law since the Defendant Bank paid cash in exchange for the mortgage, and therefore Defendant Bank had to comply with MCL 600.3204(4), which “requires a party that is not the original mortgagee to record the assignment of the mortgage to it before foreclosing.” However, “defects or irregularities in a foreclosure proceeding result in a foreclosure that is voidable, not void ab initio.” The case was remanded to the trial court to determine whether Mortgagor Plaintiffs could prove the foreclosure sale was voidable.
March 11, 2013 | Permalink | No Comments
Plaintiff Homeowner’s Complaint and Temporary Restraining Order to Halt Foreclosure Sale Dismissed for Lacking Articulated Legal Claim and Vagueness
In Sakala v BAC Home Loans Servicing, LP, CV 10-00578 DAE-LEK, 2011 WL 719482 [D Haw Feb. 22, 2011], Plaintiff Steven J. Sakala filed a pro se complaint and a motion to stay foreclosure against Defendants BAC Home Loan Servicing (BAC), Routh Crabtree Olsen Law Firm (RCO), and MERS on September 16, 2010.
Defendants BAC and MERS removed the action to federal court on October 6, 2010. BAC and MERS also filed a motion to dismiss on October 12th, 2011. Defendant RCO later joined this motion. On February 4, 2011, Plaintiff later filed a motion in opposition to Defendant’s motion to dismiss as well as a motion for order to emergency temporary restraining order to cancel trustee’s sale set for February 24, 2011.
MERS had assigned its interest in Plaintiff’s $910,000 mortgage to Bank of New York, who had moved to foreclose on Plaintiff’s property on September 10, 2009, with a foreclosure sale scheduled for February 24, 2011.
The Plaintiff’s difficult to read motion alleged that 1) as the Defendants do not have the original promissory note, they cannot enforce it; and 2) that MERS’s failure to notify Plaintiff of transfer of mortgage constitutes a TILA violation. The court, noting that the Plaintiff proceeded pro se, considered his untimely filed motion in opposition to dismiss, but disregarded new claims included therein because they were never included in his original complaint.
The Plaintiff’s five specific claims were as follows:
“1) Defendant is not a note holder of due course; 2) Defendants do not have the original wet ink signature note, nor allonge 3) Defendants lack standing as creditor in this controversy; 4) Defendants have no standing to have the right of enforcement; 5) alteration, destruction and/or mutilation of documents.”
The court agreed with Defendants BAC and MERS that Plaintiff’s complaint was vague and conclusory, failing to comply with FRCP 8 and 12(b)(6) and thus necessitating dismissal. Throughout the various claims of the complaint, Plaintiff failed to state the basic, general elements of legal claims and failed to allege factual support for such claims. The Court granted this ruling without a hearing, pursuant to Local Rule 7.2(d).
The most noteworthy of Plaintiff’s claims was that Defendants were in violation of a TILA requirement mandating that if mortgage loan was sold or transferred to a third party, the new owner was required to notify the borrower within 30 days. 15 U.S.C.1641(g). Such a violation can result in civil liability. In this case, the third party that could be subject to this violation, Bank of New York Mellon, was not a party to the lawsuit, and thus was dismissed.
Plaintiff’s temporary restraining order motion (TRO) to prevent foreclosure sale was also denied. The court noted that injunctive relief is an “extraordinary remedy” only granted “upon a clear showing that plaintiff is entitled to such relief.” Winter v. Natural Res. Def. Council, Inc. 129 S.Ct. 365, 376 (2008). A party must demonstrate “that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” Id. at 365.
Since Plaintiff’s allegations failed to state a claim for which relief could be granted against the Defendants, plaintiffs TRO motion was denied.
The court granted BAC and MERS’s motion to dismiss, RCO’s motion for joinder, and dismissed the complaint against all defendants without prejudice with leave to amend within thirty days.
March 11, 2013 | Permalink | No Comments
Hawaii District Court Dismisses Homeowner Plaintiffs Claims Against Defendants, But Breach of Fiduciary Duty Claims Against Brokers Survives
In Mier v. Lordsman Inc., 2011 U.S. Dist. LEXIS 8484 (D. Haw. Jan. 26, 2011), Plaintiffs Carmelita and Clarence Mier sought in their complaint filed on October 6, 2010, declaratory and injunctive relief, damages, and rescission of their mortgage transaction. Lending Tree filed a motion to dismiss all counts on November 11, 2010. The court granted Lending Tree’s motion to dismiss with leave to amend and applied its decision to claims against all Defendants (excepting a breach of fiduciary duty claim against Lordsman and Fidelity).
Plaintiffs signed two mortgages relating to their Waipahu, Hawaii property, the first on March 14, 2006 for $412,500 from Lending Tree and the second from IndyMac on Feb 27, 2007 for $85,500.
Specifically, Plaintiffs alleged twelve separate counts against the various defendants, rarely distinguishing between them in their complaint. The court took a liberal approach to the Plaintiffs’ pleadings, as they were pro se.
The court ruled that Plaintiffs’ first two claims, for declaratory relief and injunctive relief, both failed to state a claim upon which relief can be granted because such “claims are remedies, not independent causes of action.” The court dismissed these claims against all defendants without leave to amend.
Plaintiffs’ third claim, asserted a contractual breach of the implied covenant of good faith and fair dealing, for withholding loan disclosures and offering a loan Plaintiffs were not qualified for. The court, following Best Place v. Penn Am. Ins. Co., 82 Haw. 120 (Haw. 1996), noted that while Hawaii recognizes bad faith torts in insurance contracts because they “require a contractual relationship between an insurer and an insured,” Hawaii has yet to recognize such a tort in mortgage loan agreements. The court added that a party cannot breach a covenant of good faith and fair dealing before a contract is formed. As the relevant claims pertain to pre-contract activity, the court dismissed these claims for all defendants without leave to amend.
Plaintiffs’ fourth claim alleges that the defendants were in violation of the Truth in Lending Act (TILA) 15 U.S.C. § 1601 et seq.. Plaintiffs’ TILA claim for damages, under 15 U.S.C. § 1640(e) were time barred against all defendants. The court dismissed all claims against the defendants with leave to amend to submit evidence for equitable tolling. Plaintiff’s rescission claims under 15 U.S.C. § 1635(a) and 15 U.S.C. § 1635(f) were time barred and dismissed with respect to all defendants without leave to amend.
Plaintiffs’ fifth claim under RESPA alleges that the defendants’ loan fees were excessive and that hidden fees existed under 12 U.S.C. § 2607. The court ruled that § 2607 does not prohibit gross billing for services performed. Furthermore, the court agreed with the defendant in suggesting claims may be time barred. The court dismissed Plaintiffs’ RESPA claims without leave to amend for claims under § 2607, as well as any claims under §2603 or §2604, but is otherwise free to amend
The court ruled that Plaintiffs’ sixth claim, rescission, was not an independent cause of action and it was dismissed with respect to all defendants without leave to amend.
Plaintiffs’ seventh claim alleges defendants are liable for Unfair and Deceptive Acts and Practices for their allegedly fraudulent business practices, under HRS § 480-2(a). The court noted that lenders owed no duty of care to borrower in standard loan transactions. The court dismissed all charges and granted Plaintiffs leave to amend, but stated that Plaintiffs should consider statute of limitations concerns prior to refilling.
Plaintiffs’ eighth claim, for breach of fiduciary duty, claims that all defendants failed to advise Plaintiffs of their likelihood of default. While the court dismissed claims against the lenders, who owed no fiduciary duty to their borrowers, brokers and escrow depositories owe a fiduciary duty to their clients. All claims against defendants were dismissed with leave to amend, except as to Lordsman (a broker) and Fidelity (title and escrow company).
Plaintiffs’ ninth claim, for unconscionability under UCC-2-3202 (sic 2-302), was dismissed with respect to all defendants with leave to amend. A “stand alone” claim of unconscionability is improper and specific terms of the contract need to be identified.
Plaintiffs’ tenth claim alleged “predatory lending” violations, but as Hawaii has no common law claim for “predatory lending” the courts dismissed with leave to amend to all parties to state a cause of action based on specific illegal activities.
Plaintiff’s eleventh cause of action, to quiet title under HRS § 669-1(a), failed to allege sufficient facts about the interest of the parties involved. The court dismissed claims with respect to all parties with leave to amend.
Plaintiff’s twelfth and final cause of action, claimed MERS lacks standing as an “improper fictitious entity.” The court ruled that a claim stating a defendant lacks standing does not make sense, and dismissed the claim with leave to amend, as perhaps the Plaintiffs are claiming MERS could not foreclose because it is not a holder of the note.
March 11, 2013 | Permalink | No Comments
March 8, 2013
The Georgia Northern District Court Holds that Homeowner does not have Standing to Stop Non-Judicial Foreclosure because Homeowner’s claim that MERS Fraudulently Assigned Homeowner’s Deed is not Casually Connected to the Foreclosure on her Property
In Dehdashti v. Bank of New York Mellon, et al., 1:12-cv-595-TCB, (N.D.Ga. June 7, 2012), the Georgia Northern District Court dismissed homeowner’s claims because she did not have standing.
Manizeh Dehdashti alleged that Bank of New York Mellon and other Defendants lacked standing to foreclose on her home because MERS fraudulently assigned the deed securing Dehdashti’s home loan. Dehdashti also alleged that she made payments on her loan that were not properly accounted for. As a result, she sought to quiet title to her home, obtain money damages, and to have the court vacate the security deed. The Bank and MERS filed a motion to dismiss arguing that Dehdashti lacked standing to challenge the validity of the assignment because she was not a party to the assignment.
The court stated that in order for Dehdashti to have standing, she must have suffered an injury that was traceable to Defendants and would likely be redressed by a favorable decision. The court held that although the foreclosure of Dehdashti’s home was sufficient to establish an injury in fact, there was no connection between that injury and the action she complained of—MERS’s assignment of the security deed. The assignment did not affect whether the security deed’s power of sale could be exercised; instead, it affected who could exercise it. Further, “the only interest or right which an obligor of a claim has in the instrument of assignment is to insure him or herself that he or she will not have to pay the same claim twice.” But here, there was no risk that the power of sale would be exercised twice. Thus, Dehdashti’s claims were dismissed for lack of standing.
The court also dismissed Dehdashti’s claim that her loan payments were unaccounted for, because Dehdashti failed to show how those payments, if they were properly accounted for, would have prevented default.
March 8, 2013 | Permalink | No Comments
Wrapping up America’s Housing Future
This is my last post (see here and here for the first two) on the Bipartisan Policy Center’s Housing America’s Future report. I have one last thought to share — a radical one at that.
The report takes for granted that the federal government should provide a guarantee that wraps mortgage-backed securities and completely covers investors for credit losses. (51-52) Is it too Un-American to contemplate a world where investors bear some (I’m not even saying all!) of the credit risk? Why is that not on the table at all? Investors obviously bear credit risk in all sorts of credit markets.
But housing, we are told, is special. The 30 year fixed rate mortgage would disappear without it. That is patently not true because the private-label market has issued 30 fixed rate jumbos in the past. It may be true that the number of 30 year fixed rate mortgages would shrink to an unacceptable level if there was no government wrap, but that leads to a modest proposal.
What if the government offered a range of wraps at different price points? a 100% wrap. But also a 75% wrap and a 50% wrap and a 25% wrap. What if those limited wraps covered either first loss or last loss on different MBS? What if this menu of options allowed us to better determine a socially optimal level of government guarantee instead of assuming that it has to be total to keep the housing market from melting, melting away?
March 8, 2013 | Permalink | No Comments
March 7, 2013
Hawaii District Court Grants Defendants Motion for Summary Judgment against Plaintiff Homeowners for Foreclosure
In Krakaeur v. Indymac, 2010 U.S. Dist. Lexis 132284 (2010), the United States District Court for the District of Hawaii granted motion for summary judgment of Defendants IndyMac Mortgage Services and OneWest Bank, entitling Defendants to a decree of foreclosure on the disputed property and a possible deficiency judgment.
On March 31, 2006, to build a home on their property, Plaintiffs Dean and Robbin Krakaeur executed and delivered a promissory note in favor of IndyMac Bank in the amount of $546,00. A mortgage was recorded on April 7, 2006 and assigned to OneWest as early as March 19, 2009. Plaintiffs made mortgage payments from August 2008 – April 2009. In September 2009, OneWest recorded a “notice of intent to foreclose under power of sale” for $636,274.15.
Initially Plaintiffs offered to settle with defendants for $749,000, conditioned upon Defendants sending original note to a third-party escrow agent.
Plaintiffs asserted five counts against Defendants:
Plaintiffs first allege that Defendants violated the Unfair Trade Practices Involving Non Compliance Under 15 U.S.C. § 1802 et. seq. for failing to disclose original documentation pertaining to the mortgage. As the court found this section of law is only found in the “US Code Chapter on Newspaper Preservation,” Defendants were granted summary judgment.
The Plaintiffs’ second and third claims allege Defendants violated TILA, 15 U.S.C. § 1601 et seq., by failing to give Plaintiffs three day right to rescind and other required documentation disclosures. Plaintiff’s rescission, 15 U.S.C. § 1635 and statutory damage, 15 U.S.C. § 1640, claims were both time barred. The court did not grant Plaintiffs’ equitable tolling protection under the statutory damage provision because Plaintiffs offered no evidence as to demonstrate why they failed to discover the alleged deceptive business practices earlier.
The Plaintiffs’ fourth claim alleged Defendants violated Hawaii’s Unfair and Deceptive Trade Practices Act H.R.S. §§ 480-2 and 480-13, which the court dismissed for failure to submit evidence to support their conclusory allegations.
The Plaintiffs’ fifth claim, alleging Unfair and Deceptive Acts in Violation of UCC 1-304, 3-302.C., 3-309. 8-102.17, 8-105, 8-107, 9-0203, were found by the court to be unintelligible and without evidentiary support for their claims, granted summary judgment.
The Defendants’ motion for summary judgment as to counterclaims for foreclosure were granted. Plaintiffs opposition rooted in the claim that Defendants are not in possession of the original note and mortgage, their failure to produce these items, and their failure to record assignment of mortgage until July 6, 2010.
As there was no genuine dispute that Defendants possessed the original note and the Hawaii courts have rejected “show me the note arguments” the court dismissed these first two motions.
The court also denied Plaintiff’s argument that Defendants lacked standing due to delayed recordation of ownership. Following IndyMac v. Miguel, 117 Haw. 506 (Haw. Ct. App. 2008), to “hold form over substance” would burden the court, especially considering that the same result would occur in this case, and no meaningful delay affected any parties’ rights, since OneWest perfected its rights soon after filing for foreclosure against the plaintiffs.
Lastly, there is no genuine issue of material fact regarding the existence of the terms of the note, no dispute as to whether Plaintiffs received the loan, and no dispute as to whether the Plaintiff neglected to cure the default on the mortgage, meeting the criteria necessary for summary judgment.
March 7, 2013 | Permalink | No Comments
