February 21, 2013
Ohio Appellate Court Holds that Bank Lacks Standing Because It Commenced a Foreclosure Action Before Mortgage Was Assigned to Bank
In Wells Fargo Bank, N.A. v. Jordan, No. 91675, 2009 WL 625560 (Ohio Ct. App. March 12, 2009), the Ohio Court of Appeals ruled that the trial court erred in granting summary judgment, because Wells Fargo (the “Bank”) was not the real party in interest on the date it filed its complaint for foreclosure.
In 2003, mortgagor executed a note and mortgage with Delta Funding Corporation. In 2007, mortgagor defaulted on the loan, and the Bank filed a complaint for judgment, foreclosure, and relief on August 3, 2007. On August 22, 2007, the mortgage was assigned to the Bank. The trial court granted the Bank’s motion for summary judgment and motion to dismiss. Mortgagor appealed.
This court reversed and remanded the trial court’s decision to grant summary judgment to the Bank. In doing so, the court cited Wells Fargo Bank, N.A. v. Byrd, 897 N.E.2d 722 (Ohio Ct. App. 2008), which held that “in a foreclosure action, a bank that was not the mortgagee when suit was filed cannot cure its lack of standing by subsequently obtaining an interest in the mortgage.” Here, the mortgage was not assigned to the Bank until three weeks after the Bank filed for foreclosure. Thus, the Bank did not have standing when it initiated the action.
February 21, 2013 | Permalink | No Comments
February 19, 2013
1st Circuit Holds that MA Borrowers Can Challenge Mortgage Assignments
A First Circuit panel (including Justice Souter) ruled that under Massachusetts law, “a mortgagor has standing to challenge a mortgage assignment as invalid, ineffective, or void (if, say, the assignor had nothing to assign or had no authority to make an assignment to a particular assignee).” (14) The court concisely sets forth what is at issue in the case:
The fact pattern here is emblematic: the mortgagor’s note was delivered to one party (the lender) and then transferred; the mortgage itself was granted to a different entity, Mortgage Electronic Registration Systems, Inc., and later assigned to the foreclosing entity. We are asked, as a matter of first impression for this court, to pass upon not only the legality and
effect of this arrangement but also the mortgagor’s right to challenge it. The substantive law of Massachusetts controls our inquiry. (2-3, footnotes omitted)
There are some important dicta in the case. The court states that “there is no reason to doubt the legitimacy of the common arrangement whereby MERS holds bare legal title as mortgagee of record and the noteholder alone enjoys the beneficial interest in the loan.” (16)
February 19, 2013 | Permalink | No Comments
Eastern District of North Carolina Requires Homeowners to Allege Ability to Fully Tender Outstanding Balance of Loan to State a Claim for Rescission Under TILA, Dismisses All Other Claims
In Ward v. Sec. Atl. Mortg. Elec. Registration Sys., Inc., 858 F. Supp. 2d 561 (E.D.N.C. 2012), appeal dismissed (May 30, 2012) the Eastern District of North Carolina granted defendants’ motion to dismiss claims brought against them by borrowers for violations of the Truth In Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).
Plaintiffs executed a note with Security Atlantic Mortgage (“SAM”) in 2007, in 2010 they instituted this suit claiming SAM, MERS, and BAC Home Loans Servicing, LP (“BAC”) had violated TILA, the Home Ownership and Equity Protection Act (“HOEPA”), RESPA, the Fair Credit Reporting Act (“FCRA”), the Equal Credit Opportunity Act (“ECOA”), and the Federal Trade Commission Act (“FTCA”). In the court’s first order, they granted defendants’ motion to dismiss, finding almost all of plaintiffs’ claims were deficient, but they gave plaintiffs 21 days to correct the pleadings and correct their failure to make service on SAM. Plaintiffs’ amended complaint did not address the service issue, accordingly claims against SAM were dismissed without prejudice. BAC and MERS filed a motion to dismiss the amended complaint.
- TILA claims
Plaintiffs claimed a number of disclosure violations under TILA, and contended that MERS did not have standing as nominee nor have legal authority to transfer the note.
The court started its discussion by noting that TILA only applies to creditors and assignees, and provides that a servicer is not to be treated as an assignee “unless the servicer is or was the owner of the obligation.” 15 USC 1641(f)(1) Here, however, the plaintiffs expressly identified BAC as the lender in their Notice of Right to Cancel, and amended complaint. The court found plaintiffs’ allegations were sufficient to raise a plausible inference BAC presently owns the note and qualifies as an “assignee” under TILA.
While plaintiffs made no allegations that MERS is or was an assignee of the loan, the court denied MERS’ motion to dismiss with respect to rescission claims because without MERS it might not be possible for the court to afford complete relief to plaintiffs.
Disclosure
The court dismissed plaintiffs’ causes of action relating to TILA mandated disclosures, as they failed to allege sufficient facts to state a claim. Additionally, the court noted, the one year statute of limitations would have barred plaintiffs’ claims even if they had pled sufficient facts.
Rescission
The court acknowledged plaintiffs’ right to rescind had not expired since the original creditor had never given them the requisite copies of notice. However, using its equitable powers, the court required plaintiffs to allege an ability to fully tender the amount owed on the loan. Without such an allegation, the amended complaint would fail to state a claim for rescission under TILA.
- RESPA claims
Plaintiffs also claimed BAC violated RESPA by failing to:
- Provide notice of the loan assignment to BAC for servicing 15 days before assignment and
- Respond to written inquiry for an accounting of all payments
For the first claim, the court dismissed because the true claim was against the unnamed party who assigned the loan to BAC.
For the second claim, the court noted plaintiffs made a request they purported to be a Qualified Written Request (“QWR”), but the court found that it was actually a communication “challenging the validity of the loan, not a communication relating to the servicing of the loan as defined by statute.” Thus, the writing did not qualify as a QWR and BAC’s failure to respond did not subject BAC to RESPA liability. The court went on to note that plaintiffs also failed to state a claim under 12 USC 2605(e)- because they failed to allege any pecuniary loss attributable to the RESPA violation.
Since plaintiffs made no factual allegations relating to FCRA, ECOA, or FTCA, or for punitive damages relating to “harassment, emotional distress and displacement,” the court dismissed these claims with prejudice.
Accordingly, all of plaintiffs’ claims were dismissed with prejudice except their claim for rescission under TILA, which was dismissed with leave to amend within 14 days and required an allegation proving their ability to tender the loan proceeds.
February 19, 2013 | Permalink | No Comments
Utah District Court Holds that Plaintiff’s TILA Claims Are Time-Barred and that MERS Does Not Need to Possess the Note in Order to Appoint a Trustee or Authorize a Trustee to Foreclose
In Rhodes v. Aurora Loan Services, No. 2:10 CV 00230 TC, 2010 WL 3219310 (D. Utah Aug. 13, 2010), the United States District Court of Utah granted Defendants’ motion to dismiss Plaintiff’s claims.
In October 2006, Plaintiff refinanced the loan on his residence. On August 26, 2009, after Plaintiff failed to make payments on his loan, James Woodall, the trustee appointed by MERS, recorded a notice of default on Plaintiff’s residence. Plaintiff sent a notice of rescission of the loan pursuant to the Truth in Lending Act (TILA) on November 10, 2009. Defendants allegedly provided deficient TILA disclosures to Plaintiff including an incorrect payment schedule and an improper notice of interest rate for an adjustable rate mortgage.
Plaintiff filed a claim for violation of TILA and for rescission under TILA. The court found that both of these claims were time-barred. First, any claim for violation of TILA must be brought “within one year from the date of the occurrence of the violation.” The court stated that in the Tenth Circuit, “the statute of limitations on TILA claims runs from the time the consumer credit transaction was consummated.” The court went on to say that since there was not “legal basis for tolling the statute of limitations in this case,” the time ran on Plaintiff’s TILA claims in October 2007, one year after Plaintiff refinanced the loan on his residence. Second, if the lender never submits the required TILA disclosures, which is what was alleged in this case, “the borrower’s right to rescission expires three years after the consummation of the transaction.” Plaintiff claims to have delivered notice of rescission on November 10, 2009, more than three years after he consummated his loan transaction in October 2006.
Plaintiff also filed a claim for fraud, contending that Defendants initiated non-judicial foreclosure without showing ownership of the note. The court pointed to a large body of case law in supporting its proposition that “MERS has 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.” In addition, the court referenced Utah Code Ann. § 57-1-21 to 38 in stating that there is “no requirement that the beneficiary produce the actual note in order to authorize the trustee to foreclose on the property secured by the note.” Therefore, the court granted Defendant’s motion to dismiss both the TILA claims and fraud claim.
February 19, 2013 | Permalink | No Comments
Utah District Court Holds that MERS has Authority to Initiate Non-Judicial Foreclosure and to Assign Beneficial Interest
In Burnett v. Mortgage Electronic Registration Systems, Inc., No. 1:09 CV 00069 DAK, 2009 WL 3582294 (D. Utah Oct. 27, 2009), the United States District Court of Utah held that Mortgage Electronic Registration Systems, Inc (“MERS”) had authority to initiate non-judicial foreclosure on property of the plaintiff and to appoint a successor trustee. In this case Plaintiff received a loan in order to purchase a home. In conjunction with the loan, Plaintiff signed a trust deed, which identified MERS as “beneficiary.” The trust deed also gave MERS the right to “exercise any or all of [Lender’s] interests, including, but not limited to, the right to foreclose and sell the property; and to take any action required of Lender.” Plaintiff defaulted under the trust deed, and thereafter, MERS appointed Woodall as Successor Trustee. MERS initiated foreclosure on Plaintiff’s property and Woodall carried out the foreclosure.
The plaintiff brought forth six separate claims against Defendants including: (1) violations of the Fair Debt Collection Practices Act, (2) violations of the Utah Consumer Sales Practices Act, (3) breach of duty, (4) a request for declaratory judgment, (5) violations under § 57-1-31 of the Utah Code and (6) slander of title. The court stated that the “driving argument underlying all of Plaintiff’s claims is that MERS lacked authority to initiate the foreclosure of the Property or to appoint Woodall Successor Trustee. Plaintiff argues that because MERS was without authority to appoint Woodall Successor Trustee that Woodall also lacked authority.”
However, the court found that “the Deed of Trust expressly gives MERS both the authority to foreclose and the authority to appoint a successor trustee.” The court went on to say that upon Plaintiff’s default in payments, “MERS had authority to ‘take any action’ required of Lender, including the right to appoint Woodall trustee and the right to foreclose and sell the property.” Thus, the court dismissed Plaintiff’s complaint.
February 19, 2013 | Permalink | No Comments
February 18, 2013
Idaho Bankruptcy Court Rules Banks/MERS Lacked Authority to Transfer Notes
In In re WIlhem, 407 B.R. 392 (Bankr. D. Idaho 2009), the Idaho Bankruptcy Court, ruling in 5 similar cases, held that movant banks lacked standing to seek stay relief, and therefore, denied their motions. Movants did not demonstrate possession of the note, or any transaction by which they acquired ownership of the notes in question. Movants did not establish MERS had the authority to transfer the notes, and therefore, cannot rely on the MERS assignments to establish an interest in the notes to give them standing.
February 18, 2013 | Permalink | No Comments
February 20, 2013
Asset Quality Misrepresentation in RMBS Market
By David Reiss
Piskorski, Seru & Witkin have posted Asset Quality Misrepresentation by Financial Intermediaries: Evidence from RMBS Market, in which they “identify misrepresentations by comparing the characteristics of mortgages in the pool that were disclosed to the investors at the time of sale with actual characteristics of these loans at the same time and show that such misrepresentations constitute a significant proportion of the loans.” (2) In particular, they
identify two, relatively easy-to-quantify, dimensions of asset quality misrepresentation by intermediaries during the sale of mortgages. The first misrepresentation concerns loans that are reported as being collateralized by owner-occupied properties when in fact these properties were owned by borrowers with a different primary residence (e.g., a property acquired as an investment or as a second home). The second form of misrepresentation concerns loans that are reported as having no other lien when in fact the properties backing the first (senior) mortgage were also financed with a simultaneously originated closed-end second (junior) mortgage. (3)
The paper has some extraordinary findings:
The conclude that these “results suggest that RMBS investors had to bear a higher risk than they might have perceived based on the contractual disclosure.” (4)
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February 20, 2013 | Permalink | No Comments