February 17, 2013
North Carolina Appellate Court Finds for Home Owners, Concluding Bank Did Not Produce Sufficient Evidence of Assignment
In In re Adams, 204 N.C. App. 318, 693 S.E.2d 705 (2010) the Court of Appeals of North Carolina overturned the Superior Court and held that the alleged holder (Nationwide), while not required to present the original note and deed, was required to prove that the original note holder had transferred or assigned its interest in the note. Accordingly, it reversed the order authorizing the substituted trustees to foreclose.
Hannia Adams had executed a note with Novastar Mortgage, Inc. (“Novastar”) as the lender. To secure this loan, she and Clayton Adams executed a deed of trust which identified Novastar as the lender and Burke & Associates as the trustee. Roughly four years later Monica Walker, Matressa Morris and Nationwide sought to be appointed as substituted trustees for Burke & Associates. Their appointment identified Deutsche Bank for Soundview (“Deutsche Bank”) as the current owner and holder of the note. One week after the appointment, at the “instruction of the owner and holder of the note,” Monica Walker filed a petition with the county clerk requesting a hearing to permit respondents to show cause as to why the court should not allow a foreclosure sale to proceed.
The Clerk of Wake County Superior Court found Deutsche Bank was the holder of the note, the note was in default, and the instrument securing the debt gave the note holder the right to foreclose through power of sale. On appeal, the Superior Court affirmed based on testimony from Nationwide’s team lead in the foreclosure department and an affidavit from an assistant secretary at Deutsche Bank, and respondents appealed again.
The Court of Appeals held that under North Carolina law, the lender must prove four elements to establish their right to foreclose:
- 1. [A] valid debt of which the party seeking to foreclose is the holder
- 2. Default
- 3. Right to foreclose under the instrument
- 4. Notice to those entitled to such
The court further broke down part one to its constituent parts:
- 1. Is there sufficient competent evidence of a valid debt?
- 2. Is there sufficient competent evidence that the party seeking to foreclose is the holder of the notes that evidence the debt? (internal citations omitted)
Here the only issue was whether Deutsche Bank presented competent evidence that it was the current holder of the note.
Respondents argued Deutsche Bank’s evidence was insufficient as it was only photocopies of the note and deed of trust. However, the court cited another appellate decision for the principle that “the best evidence rule was inapplicable…when the opposing party admits that the documents shown [to them] are correct copies.” Since respondents did not dispute that the copies were correct, the court concluded the bank was not required to produce the originals.
However, the court went on to state “mere possession of a note by a party to whom the note has neither been indorsed nor made payable does not suffice to prove ownership of holder status.” (internal citations omitted, emphasis in original) Here, since the photocopies indicated the original holder was Novastar, not Deustche Bank, and the photocopies did not indicate Novastar negotiated, indorsed or transferred the note to Deustche Bank, respondents claimed they were insufficient to establish Deutsche Bank was the current holder of the note.
The court rebutted that it is settled procedure that affidavits can be used as competent evidence to establish statutory elements in de novo foreclosure appeals. Here, the testimony through affidavit from the assistant secretary of Deutsche Bank and the in-person testimony from Ms. Cole indicated Deutsche Bank was the current holder of the note and deed of trust. One gap remained however. As the court stated “however, neither the in-person testimony…nor the testimony by affidavit…expressly showed that Novastar transferred or assigned its interest in the note or deed of trust to Deutsche Bank.” Since neither the photocopies nor the testimony explained how the note and deed of trust were assigned, the court found the evidence presented was not sufficient to establish that the note was payable to Deutsche Bank and reversed accordingly.
February 17, 2013 | Permalink | No Comments
District Court of North Dakota Finds MERS has Standing to Foreclose, Rejects All Twelve of Plaintiff’s Challenges
In Bray v. Bank of Am., 1:09-CV-075, 2011 WL 30307 (D.N.D. Jan. 5, 2011) appeal dismissed, 435 F. App’x 571 (8th Cir. 2011), the court denied plaintiff’s ten motions, including his motion for summary judgment, and granted defendants’, Bank of America and Countrywide Home Loans, motion for summary judgment.
Plaintiff, Thomas Bray, received a loan from America’s Home Loans (“AHL”), and the corresponding mortgage listed MERS as the mortgagee. The proceeds of the loan were distributed to Security State Bank, a third party individual, and plaintiff Bray, who conceded that he used the funds to pay for his living expenses. Bank of America’s witness testified that the note was then transferred from AHL to Decision One Mortgage, Decision One then transferred its interest to Bank of America, roughly one month later Bank of America transferred its ownership interest to Bank of New York Melon, but remained the servicer of the note and the mortgage. MERS’ witness corroborated that their records showed that Bank of New York Mellon was the current beneficial owner of the note.
Plaintiff challenged the current foreclosure action under twelve different theories, including disputing the ownership of the note and mortgage, violations of the FDCPA, TILA, and claiming allodial title.
First, the court found that under the North Dakota Century Code, MERS had standing to foreclose as it owned both the note and the mortgage. The ensuing assignments did not change the fact that MERS was both the mortgagee and nominee for the original lender and its successors and assignees.
The court also rejected plaintiff’s Fair Debt Collection Practices Act claim, finding that both Bank of America and MERS were not subject to the FDCPA as their activities did not constitute “debt collection” as defined in the statute. Additionally, AHL was explicitly excluded from the FDCPA as they were the original creditor. 15 U.S.C. §1629a(6)(F)(ii).
Plaintiff’s Truth In Lending Act (TILA) claim, that he had exercised his right to rescission under 12 C.F.R. §226.15, was also dismissed. The court found as a matter of law plaintiff had missed the three-day period to exercise his right of rescission by approximately three years.
In addition, the court rejected plaintiff’s claim that defendants had not produced the “wet ink” originals of the note and mortgage as they had been presented to him at a previous deposition.
They also found his claim that the transaction lacked consideration since the Federal Reserve Notes received were not backed by any hard asset “patently frivolous.” In addition the court rejected his claims that Bank of America acted ultra vires, that the defendants had violated the RICO Act as the loan was not connected to any gambling activities, and that the interest rates were usurious. Finally, the court rejected plaintiff’s claims of fraud, acquiescence by the defendants, violations of the Real Estate Settlement Procedures Act, and plaintiff’s claim to allodial title, which the court described as a “concept which has no place in modern American law.”
February 17, 2013 | Permalink | No Comments
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
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