February 28, 2013
Utah District Court Holds that MERS Is Authorized to Begin Non-Judicial Foreclosure Despite the Lender’s Sale of the Loan
In King v. American Mortgage Network, Inc., No. 1:09 CV 162 DAK, 2010 WL 3516475 (D. Utah Sept. 2, 2010), the United States District Court of Utah held that MERS and Chase Home Finance (“Chase”) were authorized to begin non-judicial foreclosure of the plaintiff’s property. In November 2007, Plaintiff received a loan to purchase a property in Utah. Pursuant to the loan, the plaintiff signed a promissory note and a deed of trust. MERS was designated as the beneficiary of the deed of trust and as nominee for the lender and the lender’s assigns. The deed of trust gave MERS authority to foreclose. The lender sold the note to a third party, the Federal National Mortgage Association (“Fannie Mae”), in February 2008. Shortly thereafter, the servicing rights under the note and deed of trust were transferred to Chase. Plaintiff then defaulted under the terms of the loan.
Plaintiff argued that Chase and MERS did not have authority to begin foreclosure of the deed of trust on the plaintiff’s property because the note and deed of trust “split” when the note was sold by the lender. The court disagreed with the plaintiff and stated that there is “no disconnection between the note and mortgage” when MERS is acting as nominee for a lender. While Fannie Mae now owns the note, Chase is the authorized loan servicer on behalf of Fannie Mae. Moreover, MERS is the nominal beneficiary under the deed of trust as agent for Fannie Mae and its “successors and assigns,” which includes Chase. The court concluded that Chase and MERS were “clearly authorized to act on behalf of the holder of the Note, Fannie Mae, to begin foreclosure of the Property.” Thus, the court dismissed the plaintiff’s claims against the defendants.
February 28, 2013 | Permalink | No Comments
Utah District Court Holds that MERS Has the Authority to Initiate Non-Judicial Foreclosure and to Assign Interest to Another Party
In Schmitt v. Stearns Lending, Inc., No. 2:11 CV 00381 DS, 2011 WL 3861609 (D. Utah Aug. 31, 2011), the United States District Court of Utah held that MERS has the authority to initiate non-judicial foreclosure on a property and to assign its interest to another party. In the case at hand, Plaintiff defaulted under the terms of a deed of trust and note securing the repayment of a loan obtained to purchase a home located in Utah. Non-judicial foreclosure proceedings ensued. The mortgage was previously securitized. Plaintiff argued that the securitization process divested Defendants’ interest in the subject property because the plaintiff’s deed of trust and note were separated during the process. The plaintiff also put forth a more general claim that Defendants lacked authority to foreclose on the subject property.
The court rejected the plaintiff’s claims and found that Defendants’ had interest in the property and had the authority to foreclose on it. The court stated that securitization did not divest Defendants’ interest in the subject property; rather, the court held that “the mortgage follows the note” throughout the securitization process. In addition, the court found that Plaintiff “agreed in the Trust Deed that MERS was the beneficiary and that MERS and its successors and assigns had the authority to foreclose on the subject property in the event of default by Plaintiff.” This language, according to the court, gives MERS authority to foreclose on property and assign interest on behalf of a lender. For the above reasons, the court granted Defendants’ motion to dismiss Plaintiff’s claims.
February 28, 2013 | Permalink | No Comments
February 27, 2013
Rakoff Rules for Monoline Insurer Against Securitizer
Judge Rakoff ruled for Assured Guaranty against Flagstar and awarded Assured more than $90 million. The 103 page order is a pretty compelling read as it is a careful review of a battle of the experts and has lots of details about the loans in two Flagstar securitizations. Some interesting bits:
- the third-party due diligence providers, the Clayton Group and the Bohan Group, “were only expected to flag issues if something in the loan files appeared ‘ridiculous.’” (18)
- the court found that many of the loans had “blatant” defects. (75)
Ultimately, the court found “that the loans underlying the Trusts here at issue pervasively breached Flagstar’s contractual representations and warranties.” (91) The court’s findings may have unexpected relevance to other burning issues coming out of the financial crisis, such as whether these securitizations complied with the REMIC rules.
February 27, 2013 | Permalink | No Comments
Michigan Supreme Court Stayed Trial Court Proceedings in Order for the Court in Residential Funding Co. v. Saurman to Decide Whether MERS may commence a Foreclosure-by-Advertisement as Mortgagee of Record
In PB Reit, Inc. v. Debabneh, 801 N.W.2d 380 (Mich. 2011), the Michigan Supreme Court stayed trial court proceedings including attempts to enforce the order of eviction.
Concurring Judge Markman stated that the Court of Appeals holding in Residential Funding Co., LLC v. Saurman, 292 Mich. App. 321, 807 N.W.2d 412 (2011)—that MERS could not foreclose on homeowners property as mortgagee of record—could create “chaos in the housing market.” The court concluded that they would wait for the appeal of Residential Funding Co. to be decided before determining the outcome of this case.
February 27, 2013 | Permalink | No Comments
February 26, 2013
D.C. District Court Rules Bank Has Standing in Foreclosure Case
In McCarter v. Bank of New York, 873 F. Supp. 2d 246 (D.D.C. 2012), Plaintiff Homeowner was issued a mortgage loan of $270,000 which was reduced to a Deed of Trust and Promissory Note. Plaintiff then applied for a loan modification, which was later denied and Defendant Bank foreclosed on Plaintiff’s property. Plaintiff sought an injunction preventing the Bank from “attempting to take any action to take possession of the property….”
The Plaintiff brought 20 causes of action in addition to her request for injunctive and declaratory relief, and damages. The Defendants argued that Plaintiff’s claims were “’conclusory,’ ‘unclear,’ and ‘insufficiently pled'” and Plaintiff also failed to provide Defendants notice of the claims being raised against them. An example of one of Plaintiff’s conclusory allegations was that “BANA sold her a ‘deceptive loan product’ and unlawfully foreclosed on her property.”
The Court said that Plaintiff failed to state a claim upon which relief could be granted, and “failed to allege facts that would allow the court to draw the reasonable inference that the defendants are liable for any of the misconduct alleged.” The Court also found Plaintiffs allegations were merely conclusory statements and were not “sufficient to raise a right to relief above the speculative level.” The Court agreed with Defendants and granted their Motions to Dismiss.
February 26, 2013 | Permalink | No Comments
D.C. District Court Holds Bank Has Right to Record Deed and Deeds of Trust Previously Unrecorded Due to Clerical Error Not Cured By Original Property Owner
In Wells Fargo Bank, N.A. v. Wrenn, CIV.A. 08-165 (CKK), 2009 WL 1705692 (D.D.C. June 18, 2009), Wrenn purchased property from Stevens, and Wrenn simultaneously entered into a home mortgage loan transaction, pursuant to which she executed two Promissory Notes and two Deeds of Trust. Wells Fargo was the servicer and legal holder of the notes, HSBC the assignee of the notes, and MERS the legal holder of the Deeds of Trust for the benefit of Wells Fargo. There was a clerical error and the Deed from Stevens to Wrenn and the Deeds of Trust were never recorded. Plaintiffs were unable to obtain Stevens’ signature on the necessary recordation forms, and have been unable to record the Deed or Deeds of Trust.
Plaintiffs’ complaint seeks an order to compel Stevens to re-execute the Deed for the proper recordation. Stevens was served with a copy of the complaint, but he failed to timely respond. Plaintiffs wanted to move for entry of default, but could not because Stevens was engage in active military service. Counsel was appointed on behalf of Stevens which eventually revealed that Stevens had ceased his military service. Plaintiffs then filed a Motion for Default Judgment against Stevens and the Court found that “Stevens conveyed the subject property to Wrenn, and that Plaintiffs have the right to record the Deed and the Deeds of Trust. Additionally, Stevens’ failure to timely respond to the complaint resulted in a default judgment entered against him.
February 26, 2013 | Permalink | No Comments
New Direction for Federal Housing Policy? Finally!
The Bipartisan Policy Center has released Housing America’s Future: New Directions for National Policy. The Wall Street Journal reported (behind a paywall) that the report represents a “behind-the-scenes effort to jumpt-start the debate over Fannie’s and Freddie’s future . . ..” My preliminary thoughts on it:
- The report’s first key policy objective is exactly right: “The private sector must play a far greater role in bearing
credit risk.” (8) I have taken this position for years. There is no reason that a large share of the credit risk should not be underwritten and borne by the private sector. That is, after all, what they are supposed to do in free market. This is not to say that the federal government has no role. But the current state of affairs — with the government supporting more than 90 percent of home loans — is a recipe for the next housing disaster. - The government’s role should be limited to supporting the mortgage market for low- and moderate-income households and to playing the role of lender/insurer of last resort when the mortgage market dries up.
- The report is again exactly right when it says that Fannie and Freddie should be wound down and replaced with a wholly-owned government entity that will not suffer from the dual mandate of fulfilling a public mission and maximizing profits for its shareholders.
- The report favors a policy of assisting all very low-income households with their housing expenses. This is a great and radical step. But any such policy should take into account the Glaeser and Gyourko’s research that indicates that local land use policy can be at odds with federal housing policy in order to make sure that federal monies are used effectively.
I do not agree with the report in all respects. Some examples:
- The report characterizes the FHA as having only one “traditional mission of primarily serving first-time homebuyers.” (8) This characterization repeats the conventional wisdom but the conventional wisdom reads the history of the FHA incorrectly. I will be posting an article on the history of the FHA later this year that will hopefully set the record straight. The FHA certainly needs reform, but we should start with all of the relevant facts before jumping in.
- The report asserts that housing counseling is effective (9) but the empirical evidence is not so clear. Any policy that devotes significant resources to counseling should be built on a solid basis of empirical support.
Notwithstanding these criticisms, the report is a great first step toward developing a federal housing policy for the 21st Century. More on the report anon.
February 26, 2013 | Permalink | No Comments
