The Michigan District Court holds that Aurora Bank has Standing to Foreclose on Homeowners’ Property
In Horton v. Aurora Bank FSB, 1:12-CV-365, 2012 WL 3307451 (W.D. Mich. Aug. 13, 2012), the Michigan District Court granted Defendants’ motion to dismiss Aaron and Suzanne Hortons’ claims.
In January 2007, the Hortons purchased property and executed a promissory note, with Lehman FSB, in exchange for a $148,000 loan. The Hortons then granted a mortgage to MERS who acted solely as nominee for the lender and the lender’s successors and assigns. The mortgage was recorded on January 31, 2007. MERS later assigned the mortgage to Aurora Loan Services LLC. The Hortons defaulted on their loan on or around August 12, 2010, so Aurora initiated foreclosure by advertisement proceedings on the property. On September 8, 2011, Aurora foreclosed on the property and a Sheriff’s Deed was recorded on September 22, 2011. One day before the redemption period expired, the Hortons filed a lawsuit against Defendants.
The Hortons filed a six-count complaint against eight entities and other unknown defendants. The Hortons alleged 1) wrongful foreclosure for failure to comply with various provisions of Michigan’s foreclosure statute; 2) quiet title; 3) slander of title; 4) unfair deceptive business practices; 5) intentional infliction of emotional distress; and 6) breach of the duty to negotiate in good faith. In response, Defendants filed a motion to dismiss.
First, the Hortons claimed that their mortgage was not properly recorded. But because the Hortons failed to provide a reason why the mortgage was improperly recorded the court dismissed the Hortons’ allegation. Second, the Hortons alleged that neither MERS, Lehman, nor Aurora owned the indebtedness, owned an interest in the indebtedness, or were the servicing agents. The court noted, however, that Aurora had an interest in the indebtedness because Aurora was the record holder of the Hortons’ mortgage. Thus, the court dismissed the Hortons’ second allegation.
Third, the Hortons’ alleged that foreclosure on their mortgage violated M.C.L. § 600.3204(3) which states “[i]f the party foreclosing a mortgage by advertisement is not the original mortgagee, a record chain of title shall exist prior to the date of sale . . . evidencing the assignment of the mortgage to the party foreclosing the mortgage.” Here, MERS assigned the recorded mortgage to Aurora, who recorded the assignment with the Barry County Register of Deeds. Thus, the court held, a record chain of title existed that evidenced the assignment of the mortgage from MERS to Aurora. Thus, Defendants did not violate M.C.L. § 600.3204(3).
Fourth, the Hortons’ alleged that one of the defendants adjourned the originally scheduled Sheriff’s Sale without publishing the required notices. The court dismissed this claim, however, because the Hortons did not support their allegation with any facts. Fifth, the Hortons’ claimed that Defendants did not negotiate in good faith, because Defendants responded to the Hortons’ requests to modify the subject loan with nothing more than cursory responses and flat denials. But the court held that cursory responses do not characterize Defendants’ failure to negotiate in good faith. Sixth, the court dismissed the Hortons’ allegation that Defendants engaged in unfair and deceptive business practices, because the Hortons’ provided no factual support for their claim.
Seventh, the Hortons alleged that one or more Defendants intentionally inflicted emotional distress on the Hortons by violating Michigan’s foreclosure statute. But because the Hortons did not validly claim that any Defendant violated Michigan’s foreclosure statute, the court dismissed the Hortons’ allegation.
Finally, Michigan law does not allow an equitable extension of the period to redeem property from a statutory foreclosure sale, in connection with a mortgage foreclosed on by advertisement, in the absence of a clear showing of fraud or irregularity. Furthermore, filing a lawsuit prior to the expiration of the redemption period is insufficient to toll the redemption period. Accordingly, since the Hortons failed to successfully show fraud or irregularities in the foreclosure process, the court granted Defendants’ motion to dismiss.
February 15, 2013 | Permalink | No Comments
Rhode Island Superior Court Rejects Plaintiff’s Challenge of the Validity of MERS’s Assignment
In Cafua v. Mortgage Electronic Registration Systems, et al., C.A. No. PC 2009-7407, (R.I. Super. June 20, 2012), the plaintiff alleged defaults in the foreclosure process prevented the foreclosing party (HSBC) from having the statutory power of sale. Specifically, the plaintiff challenged the assignment of the note from MERS to HSBC on multiple grounds.
The plaintiff interpreted various statutes to require the note and mortgage to be held by the same entity at the time of foreclosure or at the time MERS assigned a mortgage to another entity. However, the court rejected the plaintiff’s interpretation and found that “Section 34-11-24 provides that an assignment of the mortgage shall also be deemed an assignment of the debt secured thereby.” As a result, the court found the assignment of the note from MERS to HSBC was valid. Additionally, the court stated that the plaintiffs “knew or should have known that foreclosure was the ultimate consequence of default by the [p]laintiffs under the clear, unambiguous language of the [m]ortgage instrument.”
The plaintiff then challenged the assignment based on a lack of authority. The plaintiff alleged that the party who executed the assignment on behalf of MERS was not an officer of MERS and held no authority to execute the assignment. Additionally the plaintiff alleged that the original lender did not authorize MERS to assign the mortgage. However, the court dismissed this theory because the plaintiff lacked standing to challenge the validity of the assignments. Since the plaintiff was not a party to the actual assignment, the plaintiff cannot challenge validity of the transaction on behalf of the assignee.
The plaintiff also alleged that the endorsement of the note in blank from MERS to HSBC was false and intentionally fabricated. Plaintiff argued that the failure of the endorsement to reference a date or he loan itself supports the allegation. However, the court found that in order to prove ownership, the note holder need only produce the note and that it payable or endorsed to the note holder. The only exception is if the borrower can show evidence of bad faith or fraud. In this case, the court found that the borrower did not introduce sufficient evidence to show bad faith or fraud. The court also relied on the UCC which states the signatures on an instrument is presumed to be authentic and authorized.
February 14, 2013 | Permalink | No Comments
Maine Court Upholds Summary Judgment in Favor of Bank
In JPMorgan Chase Bank v. Harp, 10 A.3d 718 (Me. 2011), the court held that summary judgment in favor of the bank was proper, even though the Bank did not own both the mortgage and note when it filed its complaint. Summary judgment was proper because the Bank had cured this defect at the time it filed for summary judgment, and because it met all other criteria for summary judgment.
In 2005, mortgagor “executed a note and mortgage to Nationwide Lending Corporation (“Nationwide”). An allonge to the note provided that payments would be made to Long Beach Mortgage Company.” In 2008, Washington Mutual, the successor to Long Beach Mortgage Company notified mortgagor he was in default for missed payments. In 2008, JPMorgan filed a foreclosure complaint against mortgagor. However, the assignment from Nationwide was not made until a month later, and was not recorded for a month after that. Still, the court granted summary judgment to JP Morgan. Mortgagor appealed.
The court concluded that the district court did not err in granting summary judgment since JPMorgan owned the note and mortgage at the time it filed for summary judgment. While it is true that “at the commencement of litigation, JPMorgan owned the note,” mortgagor failed to raise this issue until JPMorgan cured the defect. Moreover, pursuant to M.R. Civ. P. 17(a), JPMorgan’s failure to secure the assignment before commencing litigation was an “understandable mistake,” which did not change the cause of action or prejudice mortgagor.
February 14, 2013 | Permalink | No Comments
Maine Court Holds MERS Lacks Standing, Allows Bank to be Substituted to Prosecute the Foreclosure Action, but Overturns Bank’s Summary Judgment Motion Because of Flawed Procedure
In Mortgage Elec. Registration Sys., Inc. v. Saunders, 2 A.3d 289 (Me. 2010), the Supreme Court of Maine holds that (1) MERS lacks standing in the foreclosure action; (2) the substitution of the bank for MERS in the litigation was proper; and (3) summary judgment should not be granted.
In 2006, Mortgagor executed a note and mortgage with Accredited Home Lenders, Inc. (“Accredited”). The mortgage, not the note, mentioned that MERS was nominee for Accredited, had legal interest, and was the “mortgagee.” In 2009, MERS filed a complaint for foreclosure and moved for summary judgment, which was denied by the court. Deutsche Bank National Trust Company (“Bank”) then “moved . . . to substitute itself for MERS in the foreclosure proceedings,” noting that Accredited transferred the note to the Bank and that MERS transferred its interest in the note and mortgage to the Bank. The district court granted the Bank’s motion for substitution of parties, and later, granted the Bank’s motion for summary judgment. Mortgagor appealed.
The court here holds that MERS lacked standing to bring the foreclosure complaint. Despite being identified as a “mortgagee” in the mortgage document, “MERS is not a mortgagee pursuant to 14 M.R.S. § 6321 because it has no enforceable right in the debt obligation securing the mortgage.” Additionally, MERS did not prove it “suffered an injury fairly traceable to an act of the mortgagor and that the injury is likely to be redressed by the judicial relief sought.” Moreover, MERS lacks possession of any interest in the note.
The court also ruled that substitution of the Bank for MERS was permissible under M.R. Civ. P. 17(a) because MERS’s “prosecution of the case in its name is an understandable mistake. Further, the substitution did not “alter the cause of action” or “create any prejudice to the [mortgagors].”
The court also concluded that the district court erred in granting summary judgment “because . . . the flawed procedure . . . led to the court’s entry of foreclosure and sale and because there are genuine issues of material fact.” First, M.R.Civ. P. 52(b) and 52(e) “do not allow for reconsideration or amendment in the absence of a final judgment.” Second, the Bank’s motion to alter or amend did not include reference to the location, or street address, of the mortgaged property, pursuant to 14 M.R.S. § 6321.
February 14, 2013 | Permalink | No Comments
Maine Court Vacates Summary Judgment Ruling in Favor of Bank in a Foreclosure Action Because Bank’s Affidavits Contained Irregularities
In HSBC Mortgage Services, Inc. v. Murphy et al., 19 A.3d 815 (Me. 2011), the court held that the district court erred by granting the Bank’s summary judgment, because the Bank’s affidavits contained “serious irregularities.”
In 2005, a mortgagor executed a note and mortgage with Calusa Investments (“Calusa”). The mortgage identified Calusa as the lender and MERS as nominee for the lender. The note did not mention MERS. “On December 11, 2006, MERS executed a document purporting to assign the mortgage to HSBC. On August 24, 2009, MERS executed a document purporting to confirm the assignment of the note and mortgage to HSBC.” In 2008, HSBC filed a complaint for foreclosure against mortgagor and moved for summary judgment. HSBC’s first motion for summary judgment was denied, while its second motion for summary judgment was granted. In its second motion for summary judgment, HSBC proved ownership of the note and mortgage through an endorsement signed by Calusa’s Director of Operations and affidavits signed by HSBC’s Vice President. Mortgagor appealed.
This court concluded that the “affidavits submitted by HSBC contain serious irregularities that make them inherently untrustworthy,” in violation of M.R. Evid. 803(6). In determining trustworthiness, the courts consider many factors, and “in the setting of summary judgment practice, any substantial errors or defects in the affidavit itself submitted in conjunction with the moving party’s statement of material facts.”
Here, the affidavit swears that the confirmatory assignment of the mortgage and note dated August 24, 2009 was recorded as of that date. However, the copy of the confirmatory assignment states that it was recorded on August 27, 2009—three days after the affidavit was signed and dated. Additionally, Maria Vadney not only signed the affidavit on behalf of HSBC, but she also signed the confirmatory assignment on behalf of MERS. It is unclear if she was an officer of both parties. Other deficiencies contained in HSBC’s affidavits included (1) “the signature and jurat appear[ing] on a page separate from the body of the affidavit”; and (2) “information . . . that was not available until more than four months after the affidavit was sworn . . . .” Thus, HSBC’s affidavits did not satisfy the requirements of M.R. Evid. 803(6), and the district court erred by granting HSBC summary judgment.
February 14, 2013 | Permalink | No Comments
February 14, 2013
Misleading CoreLogic Report on Qualified Mortgage Rules
By David Reiss
The Wall Street Journal reported (behind its paywall) uncritically on a recently released CoreLogic report about the supposed impact of the new Qualified Mortgage rules issued last month by the CFPB on the mortgage market. The report is very flawed.
The report states that “the issuance of final Dodd-Frank related regulations now underway represent a watershed moment that will impact the size of mortgage market [sic] and performance for many years to come.” (3) In particular, it argues that the new CFPB Qualified Mortgage and Qualified Residential Mortgage rules “remove 60 percent of loans.” (4)
The methodology here is superficially sophisticated, employing a
waterfall approach . . . where loans that do not qualify for QM were sequentially removed. The loan features that do not meet the QM requirements include loans with back-end [Debt To Income] above 43 percent, negative amortizations, interest only, balloons, low or no documentation, and loans with more than a 30 year term. (3)
The report thus implies that the QM regulations will reduce the number of mortgages originated by nearly two thirds. But the report ignores the obvious dynamics that one would find in a well-functioning market. Once certain products are banned (let’s say interest only mortgages), borrowers will have at least three options. First, they can take the path implied by CoreLogic and exit the mortgage market thereby becoming one of the supposedly 60 percent of loans that are “removed” from the market. Or, they can seek a mortgage product that complies with the new rules (perhaps an ARM) that will allow them to buy the home of their choice. Or, they can choose to buy a cheaper house with a mortgage that complies with the rules and is affordable to them. It is very likely that many borrowers will go with the second or third option, resulting in a different but not severely diminished mortgage market.
Yes, the new rules will change the types of mortgages that are available. Yes, loans will be more conservatively underwritten to ensure that they are sustainable. Yes, home prices will need to find a new equilibrium. But no, CoreLogic, the new rules will not destroy the mortgage market.
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February 14, 2013 | Permalink | No Comments