February 13, 2013
Michigan District Court holds that a Mortgage is Valid and Enforceable even if it is separated from the Promissory Note
In Marrocco v. Chase Bank, N.A., 12-10605, 2012 WL 3061031 (E.D. Mich. July 26, 2012), the Michigan District Court granted Chase Bank’s and MERS’s motion to dismiss.
Marrocco obtained a loan of $181,000 from GreenPoint Mortgage Funding, Inc. As security for the loan, Marrocco executed a mortgage where MERS was the mortgagee, as nominee for the lender, and the lender’s successors. Marrocco defaulted on his loan and, in August 2009, filed for bankruptcy. Marrocco was granted a discharge, however, and continued to live on the property. Marrocco then brought this action alleging that JP Morgan Chase and Wells Fargo threatened to foreclose on the property, even though, he believed, the debt was discharged. Marrocco claimed that Defendants violated the Real Estate Settlement Procedures Act (RESPA) and sought to quiet title to the property extinguishing any interest claimed by the defendants. In response, Chase and MERS filed motions to dismiss.
In order for Marrocco to bring a claim under RESPA, he must allege actual damages resulting from the RESPA violation. Here, Marrocco claimed that he sent Chase a Qualified Written Request (QWR) under RESPA, and Chase failed to adequately respond. The court held, however, that Marrocco’s complaint contained no allegations indicating a connection between the response to his QWR and the subsequent threats of foreclosure. Instead, foreclosure was threatened because Marrocco failed to make the scheduled loan payments. Accordingly, the court dismissed Marrocco’s RESPA claim.
Next Marrocco wanted the court to extinguish any interest in property claimed by defendants. The court noted that in order to seek quiet title, a plaintiff must prove that his claim to the property is superior to any other person’s claim. As a result, Marrocco claimed that the mortgage was null and void. Specifically Marrocco supported his claim based on GreenPoint’s transfer of the note without the mortgage. The court noted, however, that a mortgage is enforceable under Michigan law even if it has been separated from the promissory note. Thus, the court held that the validity of the mortgage was unaffected by the separation of the note and mortgage. In response, Marrocco contested the transfer of his loan into a trust pursuant to a Pooling and Servicing Agreement, but the court stated that a litigant who is not a party to an assignment lacks standing to challenge that assignment.
Thus, the court concluded that Marrocco’s claim under RESPA and his quiet title claim must be dismissed because he failed to allege facts that would provide sufficient grounds for invalidating the mortgage.
February 13, 2013 | Permalink | No Comments
New York Supreme Court Holds that Judgment of Foreclosure and Sale May be Vacated Where Bank did not Own the Mortgage Note and Mortgage on the Date it Commenced the Foreclosure Suit
In Wells Fargo v. Sposato, 2013 N.Y. Misc. LEXIS 75, 2013 NY Slip Op 30034(U) (N.Y. Sup. Ct. Jan. 7, 2013), the Supreme Court of New York, Richmond County held that a judgment of foreclosure and sale be vacated where the assignment was executed after the suit to foreclose was commenced.
On April 8, 2008, Wells Fargo filed an action to foreclose on a mortgage originated by Option One Mortgage Corporation in 2006. However, the assignment of the mortgage and note from Option One to Wells Fargo was not executed until the next day, and was not filed with the Richmond County Clerk until April 18, 2008.
A default judgment of foreclosure and sale was granted on October 14, 2008, when the mortgagee, Sposato, did not appear in court. When Sposato filed her first Order to Show Cause on December 1, 2008, the sale planned for December 4, 2008 was cancelled. The foreclosure and sale to Wells Fargo eventually took place on November 28, 2011 for $443,634.00.
Sposato sought to vacate the October 4, 2008 judgment of foreclosure and sale, claiming that Wells Fargo lacked standing to file the original action to foreclose because: (1) the assignment was executed after commencement of the action; (2) the assignment is invalid because it was executed by a “robo-signer”; and (3) because Wells Fargo has not demonstrated that it acquired the note in accordance with the requirements of the terms for “Pooling and Servicing” the mortgage (mainly that any transfer to a Trust must be made by a depositor, not an originator).
In opposition, Wells Fargo argued that it did have standing to bring the action as “beneficial owner and holder of the note and mortgage” at the time of commencement, and that the mortgage was properly pooled and transferred by the SEC. Wells Fargo failed to address the issue of the robo-signer, and to provide details as to when and how it attained “beneficial ownership” of the mortgage and the note.
The court found that Sposato’s challenge to the judgment of foreclosure and sale did have merit, citing the possibility of fraud and/or misrepresentation concerning the assignment. Additionally, the court ruled that the failure of the bank to show that the validity of the signature on the assignment gave Sposato grounds to seek vacatur of the judgment.
February 13, 2013 | Permalink | No Comments
Robo-Signing as Abuse of Process?
Apparently not. The Florida Supreme Court issued a narrow ruling in Pino v. Bank of New York that a trial court does not have the authority “to grant relief from a voluntary dismissal where the motion alleges fraud on the court in the proceedings but no affirmative relief on behalf of the plaintiff has been obtained from the court.” (3)
In Pino,the homeowner defendant had sought to have the trial court strike “a notice of voluntary dismissal of the mortgage foreclosure action” and have “the case reinstated in order for the trial court to then dismiss the action with prejudice as a sanction to the mortgage holder for allegedly filing fraudulent documentation regarding ownership of the mortgage note.” (2)
As the court noted, the question before it was very limited. It indicates that the “case is not about whether a trial court has the authority in an ongoing civil proceeding to impose sanctions on a party who has filed fraudulent documentation with the court.” (2) That being said, if the judiciary has an epidemic of fraudulent filings in plain sight — foreclosure filings with facially flawed documentation– could it and should it have done more? If foreclosure mill law firms (and debt collection law firms) realize that they can file flawed papers and either withdraw or correct them later on, where are defendants, particularly unrepresented ones, left?
The common law already acknowledges the tort of Abuse of Process which awards damages against a party who maliciously and intentionally perverts judicial process. And yet, the judiciary has taken very few systemic measures to address what has become a dominant business model for foreclosure and debt collection law firms. So, the Florida Supreme Court is right that it only addressed a limited question under Florida law. It could have sought to rule more broadly about the judiciary’s inherent authority to protect the process of litigation. (See 33) But it chose not to.
The Court does acknowledge that there are bigger issues at play, as it asked the Florida Civil Procedure Rules Committee to consider whether additional sanctions should be available to courts to address fraudulent pleadings. (43) But it is also time for the courts to deal with the bigger questions. How should courts deal in particular with robo-signing practices endemic to the 50 states? How does the rule of law suffer when officers of the court are not required (i) to do due diligence as to their own filings and (ii) to stand by them when they turn out to be fraudulent or materially flawed? And how can that state of affairs best be remedied?
February 13, 2013 | Permalink | No Comments
February 12, 2013
Mortgage Mediation Program May Come to Attention of Oregon Legislature
Oregon had created a mediation program in 2012 but the program faced opposition from the banks because they believed the authorizing bill was unclear and exposed them to liability.
Lenders have shifted from nonjudicial foreclosures to court-supervised foreclosures, which are more costly and time-consuming. The number of court-supervised foreclosures in Oregon has exploded. Washington County, for example, recorded 840 judicial foreclosures during the first 11 months of 2012, compared with 199 during all of 2011.
Sens. Brian Boquist, R-Dallas, and Lee Beyer, D-Springfield, plan to introduce legislation to close loopholes in the 2012 bill. Their goal is create a short-term way to establish clear title for foreclosures until the Supreme Court rules on a pending foreclosure case.
Read article here: https://www.oregonlive.com/opinion/index.ssf/2013/01/mortgage_mediation_mers_need_q.html
February 12, 2013 | Permalink | No Comments
The Michigan District Court holds that MERS has Standing to Initiate a Foreclosure by Advertisement
In Matthews v. Mortgage Elec. Registration Sys., 10-CV-13740, 2011 WL 2563180 (E.D. Mich. June 28, 2011), the Michigan District Court, affirmed the Magistrate Judge’s determination that MERS had standing to foreclose on the Matthews’ property.
Shelia and Eugene Matthews took out a mortgage in 2006. They defaulted on the loan leading to the initiation of foreclosure proceedings and a sheriff’s sale of their home in 2009. Nine months later, the Matthews’ filed this lawsuit against MERS and Fannie Mae. Magistrate Judge Randon issued a Report and Recommendation which granted Defendants’ motion to dismiss the Matthews’ complaint. The Matthews’ then filed a motion to vacate the Magistrate Judge’s report pursuant to Civil Rule 60(b) (Relief from a Judgment or Order).
The court held that the Matthews’ did not challenge any of the Magistrate Judge’s findings of fact or conclusions of law. In addition, when MERS responded saying that the Matthew’s motion was not a proper basis for objecting a Magistrate Judge’s report, the Matthews’ did not correct their pleadings. Furthermore, Rule 60(b) only allows relief from a final judgment, order, or proceeding—a Report and Recommendation is not binding or final. Thus the court did not reach the merits of the Matthews’ motion.
The court also adopted the Magistrate Judge’s Report and Recommendation holding that MERS had standing to initiate a foreclosure by advertisement against the Matthews’ property. The Matthews’ claimed that MERS failed to have a valid security interest in the property and, as a result, violated Michigan’s foreclosure by advertisement statute. The court noted, however, that the Matthews’ voluntarily entered into a mortgage agreement with MERS as nominee for lender Quicken Loans, Inc. The Matthews’ mortgage contained a power of sale which gave MERS the right to foreclose and sell their property. Thus, the court held that the ability to foreclose by advertisement extended beyond the owner of the indebtedness and, therefore, MERS was within their right to pursue foreclosure by advertisement.
February 12, 2013 | Permalink | No Comments
Federal District Court in Virginia Rules for Banks/MERS in Foreclosure Case
In Tapia v. U.S Bank, N.A., 718 F. Supp. 2d 689 (E.D. Va. 2010) aff’d, 441 F. App’x 166 (4th Cir. 2011), the Court granted all of Defendants’ motions to dismiss. The Judge held that declaratory judgment that the foreclosure proceeding was deficient was inappropriate given that the foreclosure had already taken place. MERS was held to have standing to foreclose since the Deed of Trust authorized MERS to foreclose the Property in the event that Plaintiff Homeowners defaulted on the loan. “By signing the Deed of Trust, Plaintiffs agreed that MERS, as nominee for Lender and Lender’s successors and assigns, had the right to foreclose the Property and recognized that MERS could take any action required of Lender.” The court rejected Plaintiffs’ argument that standing is required before a foreclosure proceeding is initiated since standing is not required in Virginia, which is a non-judicial foreclosure state. The Court dismissed various other claims by Plaintiffs due to lack of factual or legal bases to support those claims.
February 12, 2013 | Permalink | No Comments
Federal District Court in Virginia Rules for Lender/MERS in Foreclosure Case
In Merino v. EMC Mortgage Corporation, et. al., CIV.A 1:09-CV-1121, 2010 WL 1039842 (E.D. Va. Mar. 19, 2010), Plaintiff Homeowners executed two notes, and after defaulting filed suit alleging claims under the Fair Debt Collection Practices Act, claims for declaratory judgment, and quiet title. Plaintiffs challenged the authority of the various Defendants to enforce the deeds and notes that had been transferred. The Court stated that under Virginia law, “the holder of an instrument or a nonholder in possession of the instrument with the same rights as the holder may enforce the instrument.” Additionally, “absent a contrary provision, notes are generally freely transferable, and the transferee retains the right to enforce the instrument.” The Court found that “Plaintiffs offered no allegation that they reached an agreement with a noteholder or took any other action which would suffice to discharge the obligation under Virginia law.” Furthermore, as seen in many cases, the court held that the “split” of the deeds from the notes did not render the deeds unenforceable, and under Virginia law, “when a note is assigned, the deed of trust securing that debt necessarily runs with it.” The Court agreed with the finding in a similar cases that there is no basis to support Plaintiffs’ contention that because the default by Plaintiffs “triggered insurance for any losses caused” they are “discharged from the promissory notes and the Property is released from the deeds of trust. The declaratory relief count was dismissed for the same reason as in Horvath, which was that the foreclosure had already occurred. Declaratory judgment is a forward looking mechanism and would therefore serve no purpose here. Finally, the quiet title claim was dismissed because Plaintiffs offered no plausible basis on which the Court can conclude that they possessed good title to the property.
February 12, 2013 | Permalink | No Comments
