February 9, 2013
Utah District Court Holds that MERS has the Right to Foreclose on Property even though the Promissory Note was Sold for Purposes of Securitization
In Commonwealth Property Advocates v. Citimortgage, Inc., No. 2:10 CV 00885 CW, 2011 WL 98491 (D. Utah Jan. 12, 2011), the United States District Court of Utah held that MERS had a right to foreclose the property at issue regardless of the fact that the note was sold for purposes of securitization. In this case, the plaintiff’s claim that Defendants cannot foreclose on the property is premised on the notion that Utah Code Ann. § 57-1-35 provides that when lenders transfer a note for securitization, “it loses the rights granted in the trust deed and the authority to foreclose.” MERS was named in the trust deed as beneficiary and “nominee for Lender and Lender’s successors and assigns, and the successors and assigns of MERS.”
The court rejected plaintiff’s interpretation of § 57-1-35 and dismissed plaintiff’s claim. It found that “Plaintiff offers no evidence or legal argument that MERS cannot contract for the right and power of foreclosure regardless of who holds the note, or the beneficial interest under the trust deed. Nor does Plaintiff demonstrate that such rights are actually ‘lost by transfer of the debt.’ Utah Code Ann § 57-1-35 does not address whether the parties can agree by contract to have someone other than the beneficial owner of the debt act on behalf of that owner to enforce rights granted in a trust deed.”
February 9, 2013 | Permalink | No Comments
Tenth Circuit Holds that MERS has Authority to Initiate Non-Judicial Foreclosure in Utah
In Commonwealth Property Advocates, LLC v. Mortgage Electronic Registration Systems, Inc, 474 F. App’x 732 (10th Cir. 2012), the United States Court of Appeals for the Tenth Circuit held that Mortgage Electronic Registration Systems, Inc (“MERS”) had authority to initiate non-judicial foreclosure on property of the plaintiffs. In this case, the property owners filed a complaint alleging that MERS “had no authority to foreclose on their home because the obligation had been securitized and the investors, who actually own the debt, are unknown.” According to the plaintiffs, the securitization process severed the debt from its security, which, under Utah Code Ann. § 57-1-35, rendered the trust deed unenforceable. MERS claimed it had authority to foreclose because the trust deed “specifically established MERS as beneficiary and ‘nominee for Lender and Lender’s successors and assigns.’”
The court, quoting a Utah Court of Appeals decision, rejected plaintiffs’ argument that § 57-1-35 invalidated MERS’s authority to foreclose, reasoning that the statute “’simply describes the long-applied principle . . . that when a debt is transferred, the underlying security continues to secure the debt.’” In deferring to the Utah Court of Appeals decision, the court here found that Plaintiffs’ argument “’had no legal basis under Utah law’ because even assuming the securitization scheme divested defendant of their implicit authority to foreclose as holders of the trust deeds, ‘the trust deeds explicitly granted Defendants the authority to foreclose’ and § 57-1-35 in no way prohibits such an authorization.” Thus, the court held that Plaintiffs’ claim was without merit and granted MERS’s motion to dismiss.
February 9, 2013 | Permalink | No Comments
Pennsylvania Court Denies MERS Motion to Dismiss and Rules that a Recorder of Deeds May Bring a Quiet Title Action to Compel MERS to Record Mortgage Assignments
In Montgomery County, Pennsylvania v. MERSCORP, INC., No. 11 CV 6968, 2012 WL 5199361 (E.D. Pa. Oct. 19, 2012), the court denied MERS’s motion to dismiss because 21 Pa. Stat. 351 requires recordation of all conveyances and because the “Legislature intended to create the quiet title claim” to enforce 21 Pa. Stat. 351.
The Montgomery County Recorder of Deeds brought a putative class action seeking to compel Defendants to record past, present, and future mortgage assignments. MERS filed a motion to dismiss stating “that the Plaintiff fails to state a claim because the Pennsylvania recording statute, 21 Pa. Stat. 351 does not make recording of conveyances compulsory.” However, the text of that statute clearly states that “all . . . conveyances. . . shall be recorded in the [relevant] office for the recording of deeds.” Further, the statute “appears under the heading “NECESSITY OF RECORDING AND COMPULSORY RECORDING.” Other statutes state “may be recorded” and appear under the heading “INSTRUMENTS SUBJECT TO RECORD.” which words would make filing permissive. That is not the case here.
The Defendants alternatively argued that Plaintiff is not entitled to bring an implied right of act under 21 Pa. Stat. § 351, because Plaintiff is not the present owner of the property. “In Pennsylvania, a quite title action ‘may be brought . . . to compel an adverse party to . . . record . . . any document, obligation or deed affecting any right, lien, title, or interest in land.’” Under Pa. R. Civ. P. 1061(b)(3). The court states, with reference to Pennsylvania legislative history and predecessor statutes, that “a plaintiff states a claim for quiet title relief by pleading, among other elements, that she is ‘the present owner of such premises, or…any other person, or persons, in any manner interested in any such…conveyances.” Act of April 1, 1863, P.L. 188, § 1, P.L. 188, § 1, repealed in part by 42 Pa. Cons. Stat. § 20002(a)[414]. “A plaintiff must still show an interest of some type in the land at issue or some pecuniary interest which is affected by the status of the relevant documents as recorded or unrecorded.” Plaintiff pleaded that Plaintiff’s office collects no fee when MERS, as nominee for the mortgage owner, assigns mortgages. Further, since Plaintiff has recorded “At least 10,000 mortgages” for MERS, it would be entitled to fees if these mortgages were in fact recorded. Therefore, Plaintiff (1) is a party that may bring an implied right of action and (2) has pleaded sufficient facts to establish a pecuniary interest affected by the assignment recordation.
Plaintiff’s claim of unjust enrichment was not dismissed because Plaintiff adequately stated in its complaint the requisite three elements for such claim. (1) “Defendants availed themselves of the benefits of the recording system by recording mortgages in the name of MERS as nominee, (2) Defendants, by tracking the transfer of beneficial interests in a MERS-as-nominee mortgage, have evaded recording fees that the beneficial owners would otherwise owe based on these transfers, and (3) Defendants, by recording mortgages in the name of MERS-as-nominee but continuing to transfer the beneficial interest in these mortgages, artificially and unlawfully created gaps in the chain of title of these mortgages.”
Plaintiff’s claim of civil conspiracy was dismissed because Plaintiff did not plead that Defendants “acted with the specific intent to harm the Plaintiff,” and therefore the third element, requiring malice, was absent from the claim.
February 9, 2013 | Permalink | No Comments
Pennsylvania Court Voids Default Judgment and Sets Aside Sheriff’s Sale
In Wells Fargo Bank, N.A. v. Lupori, 8 A.3d 919 (Pa. Super. 2010), the court “reverse(d) the trial court’s order denying the [Plaintiff’s] petition to strike the default judgment against them and set aside the sheriff’s sale.”
The court cited U.S. Bank v. Mallory, 982 A.2d 986 (Pa. Super. 2009), which stated “where a fatal defect or irregularity is apparent from the face of the record, the prothonotary will be held to have lacked the authority to enter [a] default judgment and the default judgment will be considered void.” According to Pa.R.C.P. 1147(a)(1), a plaintiff in a foreclosure action shall state in its complaint “the parties to and the date of the mortgage, and of any assignments, and a statement of the place of record of the mortgage and assignments.” The bank in Mallory “stated in its complaint in foreclosure that ‘it was the legal owner of the mortgage and was in the process of formalizing the assignment thereof.’” Mallory held this was sufficient notice to the owner that the bank was the legal owner of the mortgage, despite the assignment still being processed.
Here, however, in its complaint in the foreclosure action, Wells Fargo refers to the assignment from First Franklin to First Franklin Financial Corporation, but does not refer to an assignment to Wells Fargo nor does it allege it was the owner of the mortgage. Thus, the Plaintiff here was not put on notice that Wells Fargo was the legal owner of the mortgage note, and Wells Fargo’s complaint does not comply with Pa.R.C.P. 1147(a)(1).
February 9, 2013 | Permalink | No Comments
Pennsylvania Court Holds that a Homeowner May Bring Suit in Federal Court After State Court Issued a Judgment of Default against Homeowner
In Straker v. Deutsche Bank National Trust, et al., No. 3:09 CV 338, 2011 WL 398374 (M.D. Pa. Feb. 3, 2011), the district court held that a homeowner’s case would not be dismissed, as requested by Defendants, due to subject matter jurisdiction, issue preclusion, claim preclusion, or the statute of limitations. Claims regarding the Real Estate Settlement Procedures Act (RESPA) as to Homeq would not be dismissed, while claims involving the Racketeer Influenced and Corrupt Organizations Act (RICO), RESPA as to Deutsche Bank and MERS were dismissed.
In 2006, MERS sold Plaintiff two subprime loans. MERS assigned one mortgage to Deutsche Bank, “who instituted a foreclosure action in state court, which resulted in a judgment by default against Plaintiff.” The homeowner Plaintiff then filed a complaint in federal court, claiming RICO and RESPA violations, civil conspiracy, unjust enrichment, and fraudulent inducement. The Defendants moved to dismiss the complaint, and Plaintiff moved to strike part of Defendants’ motion.
The district court reviewed the Magistrate Judge’s report and recommendation de novo. With regard to subject matter jurisdiction, the district court determined that “the Rooker Feldman doctrine did not divest this Court of jurisdiction” because Plaintiff was complaining of injuries that existed before the state court foreclosure actions, and were not caused by the state court proceedings. Further, the court ruled issue preclusion does not estop Plaintiff from relitigating in federal court since “the state court judgment against [Plaintiff] was by default.” Notably, claim preclusion did not estop Plaintiff from bringing suit at this point in litigation since Plaintiff alleged she was not served with a complaint in the foreclosure action, which voids a judgment in Pennsylvania.
Plaintiff’s common law claims and RESPA claim under 12 U.S.C. 2607 were not time-barred. The statute of limitations for common law claims runs from the time “plaintiff learns of the injury and its cause.” Plaintiff claimed she discovered her claims within this time span, and so, the claims cannot be dismissed under a 12(b)(6) motion. With respect to the RESPA claim, the statute of limitations was “not evident on the face of the amended complaint” and so the claim cannot be dismissed under a 12(b)(6) motion.
The court also ruled that Plaintiff’s RICO claims should be dismissed because plaintiff failed to state a claim under 18 U.S.C. 1964. Plaintiff “fail[ed] to allege sufficient facts to support her claims and lacks the requisite level of precision required in civil claims based on underlying fraud under Federal Rule of Civil Procedure 9(b).”
Claims under 12 U.S.C. 2605(e) were dismissed in part. Plaintiff claims that Deutsche Bank failed to sign its response to a qualified written request, but there is no requirement under RESPA for this, and so Plaintiff fails to state a claim under 2605(e). However, with respect to Defendant Homeq, Plaintiff states a claim, because she alleged Homeq failed to timely respond, which is indeed a violation of 2605(e).
All claims relating to MERS were dismissed since Plaintiff failed “to allege that MERS took any actions leading to [Plaintiff’s] alleged harm.”
February 9, 2013 | Permalink | No Comments
Arkansas Supreme Court Holds that MERS is Not a Necessary Party in Foreclosure Proceedings
In MERS, Inc. v. Southwest Homes of Arkansas, 301 S.W.3d 1 (AK S. Ct, 2009), the Supreme Court held that MERS was not a real party in interest and need not be named or served in a foreclosure action by a second mortgage holder. The case arose from a foreclosure on a mortgage granted in a one-acre lot that also had a prior deed of trust. To secure the first mortgage, the borrowers entered into a deed of trust. The lender on that deed of trust was Pulaski Mortgage, the trustee was James C. East, and the borrowers were the Lindseys. MERS was listed on the deed of trust as the “Beneficiary” acting “solely as nominee for Lender,” and “Lender’s successors and assigns.” To secure a second promissory note, the owners of the mortgage granted the mortgage to Southwest Homes. Both mortgages were recorded. Southwest later entered into foreclosure closings and did not serve MERS. The Court found that MERS was at most the mere agent of the lender Pulaski Mortgage Company, Inc., and as such it held no property interest and was not a necessary party.
February 9, 2013 | Permalink | No Comments
February 8, 2013
Minnesota Court of Appeals holds that MERS has Standing to Foreclose By Advertisement
In In re Sina, No. A06-200, 2006 WL 2729544 (MN. Ct. App. 2006), the Court of Appeals of Minnesota held that MERS had standing to foreclose when it held legal title to a mortgage and was acting as nominee for the holder of the note. Candice Sina, the appellant, had executed a mortgage on the property in favor of Maribella. Maribella then executed an assignment of mortgage in favor of MERS. After Sina defaulted on her mortgage payment, MERS recorded the assignment and commenced foreclosure proceedings. Although the record showed that a secondary broker serviced the mortgage, the assignment of mortgage was recorded in MERS’s name and by agreement, MERS retained the power to foreclose the mortgage in its name. Therefore, they had standing to foreclose the property by advertisement.
February 8, 2013 | Permalink | No Comments
