February 24, 2013
Ohio Court of Appeals Holds that the Note Follows the Mortgage Where Intent of Parties is Clear
In Bank of New York v. Dobbs, 2009-Ohio-4742, the court found that the Bank of New York (Bank) had standing to bring a foreclosure action against the homeowners. In this case, Countrywide Home Loans (Countrywide) was the original note holder, and Bank claimed that Countrywide assigned the note to MERS, who then assigned to Bank. The homeowners argued that Bank did not have standing to foreclose because there was no evidence that Countrywide assigned the note to MERS and thus the chain of title was incomplete. In determining standing, the court found that “the chain of title between Countrywide, MERS and [Bank was] not broken” because “the obligation follows the mortgage if the record indicates the parties so intended” and in this case there was “clear intent by the parties to keep the note and mortgage together, rather than transferring the mortgage alone.” Thus, the note followed the mortgage upon transfer, and Bank was the lawful holder of the note.
February 24, 2013 | Permalink | No Comments
February 22, 2013
Utah District Court Holds that Consent Is Not Required for Lender to Assign Interest to MERS and that the Note and Deed of Trust Are Still Valid After Securitization; Court Holds TILA Claims Are Time Barred
In Witt v. CIT Group/Consumer Finance Inc., No. 2:10 CV 440 TS, 2010 WL 4609368 (D. Utah Nov. 5, 2010), the United States District Court of Utah granted Defendants’ motion to dismiss Plaintiffs’ claims.
On September 30, 2002, Plaintiffs executed a promissory note and a deed of trust in conjunction with a transaction to borrow money to finance a house. The deed of trust assigned all of the lender’s beneficial rights, title, and interest to MERS. On October 30, 2007, the lender securitized the mortgage loan and sold it to another party. Plaintiffs defaulted under the terms of the note and deed of trust, and on April 7, 2008, MERS appointed a successor trustee. Thereafter, the trustee initiated foreclosure proceedings on Plaintiffs’ property.
Plaintiffs first allege that the assignment from the lender to MERS was invalid because Plaintiffs never consented to the assignment. However, the court found that Plaintiffs’ consent was not required because “under general contract law, the assignability of a contract is assumed unless the parties express a contrary intent by contract.” In the case at hand, the plaintiffs “have not pled nor brought forth any evidence to suggest that Plaintiffs contracted for a prohibition on the assignment of the Note and Deed of Trust.” The court went on to say that the deed of trust, in fact, expressly provides for assignment.
Next, the plaintiffs claimed that the deed of trust and note were no longer valid because Defendants “split” the note in the process of securitization. The court, however, looked to “well-settled precedent” that establishes that “transfer of the note carries with it the security, without any formal assignment or delivery, or even mention of the latter.”
Finally, the plaintiffs brought forth a claim based on the violations of the Truth in Lending Act (TILA). The court quickly dismissed this claim as time barred. Under TILA, an action must be brought “within one year from the date of the occurrence of the violation.” A TILA violation occurs when the credit transaction is “consummated and completed.” The credit transaction at issue between the parties was consummated on September 30, 2002, and the opportunity for the plaintiffs to bring a TILA claim expired on October 1, 2003. Thus, the court dismissed each of the plaintiffs’ claims.
February 22, 2013 | Permalink | No Comments
Utah District Court Holds that MERS Has Authority to Initiate Non-Judicial Foreclosure and Does Not Need to Possess a Note to Appoint a Trustee; Court Holds that TILA Rescission Claim Was Insufficient
In McGinnis v. GMAC Mortgage Corporation, No. 2:10 CV 00301 TC, 2010 WL 3418204 (D. Utah Aug. 27, 2010), the United States District Court of Utah granted Defendants’ motion to dismiss Plaintiff’s claims.
On June 21, 2007, Plaintiff obtained a loan to purchase a property in Utah. The trust deed that Plaintiff signed in conjunction with the loan stated, “MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this Security Instrument.” On July 18, 2009, the trustee appointed by MERS to conduct the foreclosure, recorded a notice of default against the property. Due to alleged disclosure violations of the Truth in Lending Act (TILA), Plaintiff then filed a notice of rescission on August 5, 2009.
First, Plaintiff claimed that MERS lacked authority to foreclose and that MERS could not appoint a trustee because MERS is “merely a nominee of the lender and does not possess the note.” The court found this argument unpersuasive, and stated that “courts have consistently held that [language such as that found in this trust deed] gives MERS the authority to foreclose in behalf of the lender and that MERS need not possess the note in order to appoint a trustee in behalf of the lender who does hold the note.” Moreover, the court pointed out that Utah Code Ann. § 57-1-21 to 38 contains no requirement that the beneficiary produce the actual note in order to authorize the trustee to foreclose on the property secured by the note.
Second, the plaintiff claimed that he rescinded his loan under the rescission provisions of TILA on August 5, 2009, because he was not provided with the proper disclosures under TILA. However, the court held that for the borrower to have the right to rescind under TILA, the lender “must fail to make a material disclosure.” The court went on to say that, although Plaintiff may have a claim for rescission, the court cannot determine based on the pleading how Defendants failed to provide him the material disclosures required by TILA. Therefore, the court granted Defendants’ motion to dismiss both claims. The court did, however, give the plaintiff an opportunity to amend his TILA rescission claim.
February 22, 2013 | Permalink | No Comments
Michigan Supreme Court holds that MERS has Standing to Foreclose on Homeowner’s Property by Advertisement
In Residential Funding Co., L.L.C. v. Saurman, 490 Mich. 909, 805 N.W.2d 183 (2011), the Michigan Supreme Court held that under Michigan law, mortgagees of record could commence foreclosures-by-advertisement.
Saurman and Messner purchased property and obtained financing from a financial institution. Both transactions involved loan documentation and a mortgage security instrument and the original lender in both cases was Homecomings Financial, LLC. The mortgage, however, did not list Homecomings Financial as the mortgagee but instead identified MERS. Defendants challenge the respective foreclosures as invalid because, they allege, MERS did not have authority under MCL 600.3205(1)(d)—regarding, inter alia, foreclosures by advertisement—to foreclose by advertisement. The Michigan Court of Appeals vacated foreclosure proceedings and remanded the case to the Michigan Supreme Court.
The court stated, pursuant to MCL 600.3204(1)(d), “Mortgage Electronic Registration System (MERS) is ‘the owner … of an interest in the indebtedness secured by the mortgage’ at issue in each of these consolidated cases because “[MERS’] contractual obligations as mortgagee were dependent upon whether the mortgagor met the obligation to pay the indebtedness which the mortgage secured.”
MERS’ status as an owner of an interest in the indebtedness did not equate to an ownership interest in the note. Instead, as record-holder of the mortgage, MERS owned a security lien on the properties, the continued existence of which was contingent upon the satisfaction of the indebtedness. This interest in the indebtedness authorized MERS to foreclose by advertisement under MCL 600.3204(1)(d).
The court also noted that in cases where the mortgagee transferred a beneficial interest but retained record title, courts have unanimously held that “[o]nly the record holder of the mortgage has the power to foreclose; the validity of the foreclosure is not affected by any unrecorded assignment of interest held for security.”
Finally, the court held that the phrase “interest in the indebtedness” denoted a category of parties entitled to foreclose-by-advertisement and indicated the Legislatures intent to include mortgagees of record among the parties entitled to foreclose-by-advertisement, along with parties who own the indebtedness and parties who act as the servicing agent of the mortgage. Therefore, the court reversed the Court of Appeals’ decision because it erroneously construed MCL 600.3204(1)(d).
February 22, 2013 | Permalink | No Comments
Do Foreclosures Cause Crime?
The Furman Center says yes. The Center conducted an empirical study in New York City and found that “foreclosure activity appears to be linked to subsequent crime” if “there have been three or more foreclosure notices issued on a blockface.” (4)
The study may give law enforcement agencies something to chew over now (perhaps CrimeStat should track foreclosures?!?), but it should also give those who study housing finance policy something to plan for as we look ahead to the next foreclosure crisis. If this finding is replicated in other jurisdictions, should federal and state governments put into place any policies and programs that will address this foreseeable consequence of concentrated foreclosures? The Furman study suggests some policies on its last page.
February 22, 2013 | Permalink | No Comments
U.S. Bankruptcy Court in Kentucky Holds MERS Valid Nominee of Mortgage, Had Authority to Assign Mortgage, and Lender Properly Assigned Note to Citi
In In re Jessup, 2010 WL 2926050, the U.S. Bankruptcy Court for the Eastern District of Kentucky (“Court”) denied the bankruptcy trustee’s (“Trustee”) motion for summary judgment in a suit to set aside Defendants’ mortgage lien against the bankruptcy debtors’ (“Debtors”) property.
In February 2007, Debtors executed a note to Homeland Capital Mortgage (“Lender”), and granted a mortgage to Defendant MERS as nominee for Lender. The mortgage identifies the mortgagee as MERS as nominee for Lender. In March 2007, the mortgage was duly recorded, and the note with “blank indorsement” was transferred to Defendant CitiMortgage, Inc. (“Citi”). In January 2008, MERS assigned the mortgage to Citi. In February 2008, the assignment of mortgage was duly recorded.
In March 2009, Debtors filed for Chapter 7 bankruptcy relief. In September 2009, the Trustee filed a complaint to “Determine Validity, Extent and Priority of Liens and for Sale of Real Property,” and the parties cross-moved for summary judgment. In essence, the Trustee seeks to set aside Citi’s mortgage lien as invalid pursuant to the Trustee’s “strong-arm power” under Section 544 of the U. S. Bankruptcy Code.
The Trustee set forth three bases for his contention:
First, the Trustee argued there was no evidence Lender appointed MERS as nominee, and therefore, no valid mortgagee was named in the mortgage. The Trustee argued Lender failed to provide a written nomination of MERS to act as mortgagee. The Court rejected this argument, however, and held the language in the mortgage itself was sufficient to identify MERS as nominee.
Second, the Trustee argued MERS lacked authority to assign the mortgage to Citi. The Trustee argued MERS failed to provide evidence that it nominated an “Authorized Signator” to execute the assignment. In fact, the person who executed the assignment was an employee of an entity authorized to execute MERS documents, but was inadvertently left off the list of officers authorized to execute MERS documents. Defendants submitted an affidavit of the Secretary of MERS, which stated the assignment was executed with MERS’s authority an consent. The Court held the ratification in the affidavit was sufficient to establish MERS’s authority to execute the assignment to Citi.
Finally, the Trustee argued Citi was not holder of the note. Under Kentucky Law, a note is negotiated by “special indorsement” from one creditor to another, or by “blank indorsement.” Blank indorsement converts the note into bearer paper that may be negotiated by transfer of possession alone. The Court held Lender transferred the note with blank indorsement to Citi, and since Citi had physical possession of the note payable to bearer, it is the holder entitled to enforce it.
February 22, 2013 | Permalink | No Comments
Kentucky Court of Appeals Holds that Bank Lacked Standing Because it did Not Obtain an Interest in the Note Until after Commencing the Foreclosure Action
In Morgan v. HSBC Bank USA, NA, 2011 WL 3207776 (Court of Appeals of KY, 2011), the Court of Appeals of Kentucky reversed the trial court’s judgment as a matter of law that HSBC Bank USA, NA (“HSBC”) had standing to enforce a note against Morgan (“Borrower”) in a foreclosure action, and remanded for further proceedings.
In August 2005, Borrower executed a note to Ownit Mortgage Solutions, Inc. (“Ownit”), and granted a mortgage to MERS as nominee for Ownit. In early 2008, Borrower defaulted under the note.
On July 31, 2008, HSBC commenced foreclosure proceedings against Borrower. HSBC claimed to be holder of the note, but stated a copy was unavailable at the time it filed the complaint. Borrower moved to dismiss arguing, inter alia, there was no proof HSBC had standing because it failed to attach a copy of the note to its complaint. In its response, HSBC attached a copy of the note between Ownit and Borrower. HSBC was not a party to the note.
On August 11, 2008, an assignment of mortgage from Ownit to HSBC dated August 4, 2008 was recorded.
On December 3, 2008, HSBC moved for summary judgment, and attached a copy of the note to its motion. The note included an undated note allonge purportedly assigning it to HSBC.
The trial court denied Borrower’s motion to dismiss and granted HSBC’s motion for summary judgment holding the endorsement in the note allonge was sufficient proof that HSBC was the holder of the note.
The Court of Appeals reversed, describing the foregoing sequence of events a “troubling.” Specifically, the court was uneasy about the fact HSBC did not attach a copy of the note it its complaint, and then later the undated note allonge purportedly assigning the note to HSBC appeared in the record. Further complicating the issue was the fact HSBC did not obtain an interest in the mortgage until after it commenced the foreclosure action. As a result, the Court of Appeals held the trial court erred because (1) the record was insufficient to determine when HSBC obtained an interest in the note, and (2) HSBC did not obtain an interest in the mortgage until after it commenced the foreclosure action against Borrower.
February 22, 2013 | Permalink | No Comments
