March 5, 2013
Reiss on Fannie and Freddie Multifamily Contraction
GlobeSt.com interviewed me (and others) about Federal Housing Finance Agency Acting Director Edward J. DeMarco plans to reduce Fannie and Freddie’s multifamily finance volume by 10% from last year’s levels:
Also consider this, says David Reiss, a professor of Law at Brooklyn Law School who has published papers on the GSEs: “We are living through a very abnormal time when the federal government dominates the market for single family and multifamily mortgages.”
This is neither necessary nor optimal, he tells GlobeSt.com. “It is not necessary because there have been long stretches in the past when the government had a much smaller role in those markets. And other credit markets operate well with no or a much smaller government footprint.”
This is not to say that there is no role for the federal government in the multifamily mortgage market, Reiss continues — just that it is far too large at this point in time. “If the reduction in the GSE footprint is telegraphed over a reasonable time horizon to the other market participants, this change should be taken in stride by the multifamily market,” he predicts.
March 5, 2013 | Permalink | No Comments
Michigan Court of Appeals holds that Bank has Standing to Foreclose on Property by Advertisement because Bank had a Sufficient Interest in the Indebtedness Secured by the Mortgage as Record Holder of the Mortgage
In Fawaz v. Aurora Loan Services LLC, 302840, 2012 WL 1521589 (Mich. Ct. App. May 1, 2012), the Michigan Court of Appeals held that Aurora Loan Servicing LLC had standing to foreclose on homeowners’ property by advertisement.
Nazih and Iman Fawaz obtained a loan from American Brokers Conduit Corporation which was secured by a mortgage on their residential property. MERS was designated the mortgagee with the right of foreclosure and the power of sale. When the Fawazs defaulted MERS assigned the mortgage to Aurora. Six months later, Aurora foreclosed on the property by advertisement. The Fawazs brought this action to quiet title on grounds that they had entered into loan modification negotiations with Aurora.
The Fawazs contend that the foreclosure was void because Aurora did not own or have any interest in the indebtedness secured by the mortgage. MCL 600.3204(1) governs foreclosure by advertisement and provides, in relevant part, as follows: “[A] party may foreclose a mortgage by advisement if all of the following circumstances exist: (d) The party foreclosing on the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” The Fawazs argue that MERS, as mortgagee, did not own or have an interest in their indebtedness and therefore when MERS assigned its interest to Aurora, such interest did not give Aurora the authority to foreclose by advertisement.
The court cited the proposition expressed in Residential Funding Co., LLC v. Saurman, 490 Mich. 909; 805 NW2d 183 (2011) that MERS, as mortgagee, owned a sufficient interest in the indebtedness secured by the subject mortgage because, as record holder of the mortgage, MERS owned a security lien on the property. Thus MERS could foreclose by advertisement. Thus, when MERS assigned its interests in the mortgage to Aurora, Aurora had the same authority to foreclose under MCL 600.3204(1). Therefore, the foreclosure was valid.
March 5, 2013 | Permalink | No Comments
March 2, 2013
Florida Appellate Court Holds Bank Has Standing to Foreclose because MERS Properly Assigned the Note to it and Lack of Ownership of the Beneficial Interest in the Note Does Not Deprive an Assignee of Standing
In Taylor v. Deutsche Bank Nat. Trust Co., 44 So.3d 618 (2010), the Fifth District Court of Appeal of Florida held Deutsche Bank Nat. Trust Co. (“Deutsche Bank”) had standing to foreclose because MERS properly assigned the note to it and a lack of a beneficial interest in the note does not deprive an assignee of standing in a foreclosure action.
Taylor (“Borrower”) executed a note and mortgage in favor of First Franklin, a division of National City Bank of Indiana (“First Franklin”). The mortgage identified MERS as nominee for First Franklin. MERS, as nominee for First Franklin, assigned the mortgage to Deutsche Bank.
Following Borrower’s default under the note, Deutsche Bank commenced foreclosure, and moved for summary judgment. Borrower argued Deutsche Bank lacked standing to foreclose alleging that the note was not assigned to Deutsche Bank and that the mortgage was not properly assigned to Deutsche Bank. Specifically, Borrower argued that because the note was not indorsed and neither contained an allonge nor a specific assignment, the note was payable to First Franklin, and therefore, Deutsche Bank lacked standing to enforce it. Borrower argued that under Florida Law, only the “holder” in due course could seek foreclosure.
The Court disagreed, however, and held that ownership of a beneficial interest in the note is not required to commence foreclosure. Standing to foreclose may be derived either by being the holder of the note or a nonholder in possession who has the rights of a holder. Here, the mortgage granted MERS the status of a nonholder in possession with the rights of a holder (the case did not elaborate on how MERS came to be in possession of the note). Although MERS was not the party seeking foreclosure, the written assignment explicitly passed the right to enforce the note to Deutsche Bank. As a result, the Court held that MERS properly assigned the note and mortgage to Deutsche Bank, and therefore, Deutsche Bank had standing to foreclose.
March 2, 2013 | Permalink | No Comments
Florida Appellate Court Holds That if MERS was Holder and Owner of Note, it Would Have Standing to Foreclose
In MERS v. Azize, 965 So.2d 151 (2007), the Second District Court of Appeal of Florida reversed the trial court’s dismissal of a foreclosure action with prejudice and remanded because lack of ownership of the beneficial interest in a note does not deprive MERS of standing to foreclose.
In 2004, Azize (“Borrower”) executed a note in favor of Aegis Lending Corporation (“Aegis”). The mortgage identified MERS as mortgagee, and further identified MERS as nominee for Aegis.
In February 2005, MERS filed a complaint seeking to reestablish the note and to foreclose the mortgage. In the complaint, MERS alleged it was the owner of the note and the note had been lost or destroyed after MERS acquired it. MERS argued that because the note was in its possession when it was lost, MERS was entitled to enforce it. The complaint did not allege how MERS came into possession of the note, but Borrower did not contest the allegation and the trial court’s decision was not based on that issue. Instead, the trial court dismissed the complaint with prejudice for failure to state a claim because MERS lacked standing to foreclose since it did not own the beneficial interest in the note. The trial court’s decision was also based on the premise that one corporation cannot serve as the agent for another. MERS appealed.
The Court reversed and remanded. Under Florida Law, the holder of a note has standing to seek enforcement of the note, and standing is broader than simply ownership of the beneficial interest. The Court noted that if MERS could establish a prima facie case that it was the owner and holder of the note and mortgage, it would have standing to foreclose. Furthermore, the Court noted that the trial court’s conclusion that MERS further lacked standing because “one corporation cannot serve as the agent for another corporation” is incorrect.
March 2, 2013 | Permalink | No Comments
U.S. District Court in California Holds MERS has Standing to Foreclose and Dismisses Borrower’s Complaint Against MERS because the Claims were Premised upon MERS’ Lack of Standing
In Germon v. BAC Home Loans Servicing LP, 2011 WL 719591 (S.D.Cal. Feb. 22 2011), the U.S. District Court for the Southern District of California (“Court”) dismissed a borrower’s complaint against MERS and others (“Defendants”) because the borrower failed to state a cause of action.
In 2007, Germon (“Borrower”) executed a note in favor of Countrywide Bank, FSB (“Countrywide”). The Deed of Trust identified ReconTrust (“Recon”) as the Trustee and MERS as the beneficiary.
On May 4, 2010, following Borrower’s default under the note, Recon duly recorded a notice of default. On May 6, 2010, MERS assigned its beneficial interest in the note to BAC Home Loans Servicing, LP (“BAC”). On August 11, 2010, Recon duly recorded a notice of trustee’s sale, which was set for September 3, 2010. Borrower then requested to modify the loan, and BAC agreed to postpone the sale until October 1. Ultimately, BAC denied Borrower’s request for loan modification, and on October 1, BAC purchased the property at the trustee’s sale.
Thereafter, Borrower filed a complaint seeking to set aside the trustee’s sale, cancel the trustee’s deed and quiet title in Borrower. In its complaint, Borrower alleged, inter alia, breach of contract, breach of the implied covenant of good faith and fair dealing (“implied covenant”), and violations of the Federal Fair Debt Collection Practices Act (“FDCPA”) and Truth in Lending Act (“TILA”). The Court dismissed the complaint in its entirety for failure to state a claim.
The Court dismissed Borrower’s claims to set aside the trustee’s sale, cancel the trustee’s deed and quiet title because each claim rested upon the erroneous premise that MERS lacked authority to foreclose and to assign its beneficial interest in the note to BAC. First, the Court held the deed of trust clearly granted MERS authority to initiate foreclosure and to assign that right. Second, the Court rejected Borrower’s argument that only the “holder of the note” can initiate foreclosure because under California Law, the “trustee, mortgagee, or beneficiary” may institute nonjudicial foreclosure like the one in the present case. The Court also noted that Borrower failed to tender the balance of the unpaid debt, which is a prerequisite for claims to set aside a Trustee’s Sale and cancel a Trustee’s Deed.
Similarly, the Court dismissed Borrower’s claims alleging breach of contract and breach of the implied covenant because they too were based upon the erroneous premise that MERS lacked standing to foreclose and to assign its beneficial in the note.
Borrower also alleged BAC breached the implied covenant by “mishandling” Borrower’s financial data when reviewing the loan modification request, and by denying the request without allowing Borrower to resubmit the correct data prior to the foreclosure sale. The Court dismissed this claim because absent an express contractual term requiring loan modification, the Borrower could not create the obligation by alleging a breach of the implied covenant.
The Court dismissed Borrower’s FDCPA claim because it too relied upon the erroneous premise that MERS lacked standing to foreclose.
Finally, the Court dismissed Borrower’s TILA claim because it was time-barred by the one-year statute of limitations.
March 2, 2013 | Permalink | No Comments
March 6, 2013
UCC’s Permanent Editorial Board Reports on Ownership of and Right to Enforce Notes
By Brad Borden
In Application of the Uniform Commercial Code to Selected Issues Related to Mortgage Notes, the Permanent Editorial Board for the Uniform Commercial Code describes the legal difference between the right to enforce a note (governed by Article 3 of the UCC) and ownership of a note (governed by Article 9 of the UCC). The Report identifies the bases for different rules governing the right to enforce and ownership:
The Report recognizes that a person may own a mortgage note but not have the right to enforce it. In disputes between parties regarding the rights of finance institutions vis-a-vis other finance institutions or borrowers, that distinction could be important. When the issue relates to the tax status of a mortgage pool, the distinction is relevant for purposes of determining the parties rights with respect to the note.
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March 6, 2013 | Permalink | No Comments