February 5, 2013
Massachusetts Supreme Court Holds that Bank Lacks Standing to Bring SCRA Claim Against Homeowner
In HSBC Bank USA, N.A. v. Matt, 464 Mass. 193 (2013), the Supreme Court of Massachusetts found that HSBC Bank USA, N.A. (HSBC) lacked standing to proceed with its claim against the homeowner in a servicemember proceeding. HSBC initially filed a complaint in the Land Court under the Massachusetts Soldiers’ and Sailors’ Civil Relief Act (Massachusetts Act) “to determine if [homeowner] was entitled to foreclosure protections under the Federal Servicemembers Civil Relief Act (Federal SCRA or SCRA).” The homeowner did not contest the fact that she was not entitled to protection under the SCRA. Instead, she disputed HSBC’s standing to bring a foreclosure action generally, arguing, “[HSBC] was not the clear holder of either her note or her mortgage.” Despite the fact that the homeowner “was not entitled to appear or be heard at the servicemember proceeding,” the court considered the standing question sua sponte.
The court held that in determining standing in servicemember proceedings, a bank must present evidence to prove their status as mortgagees, or else as agents of mortgagees. The court reversed the Land Courts decision holding that HSBC had standing because of a purported right to purchase the homeowner’s mortgage. However, the court noted that determinations of standing in servicemember proceedings do not establish (and thus do not eliminate) standing in foreclosure proceedings.
February 5, 2013 | Permalink | No Comments
Pennsylvania Superior Court Rules that Appellant’s Claim Against MERS is Time-Barred
In Mortgage Electronic Registration Systems, Inc., et al. v. Ralich, 2009 PA Super 163 982 A.2d 77, the Superior Court affirmed the Court of Common Pleas’s holding granting MERS’s motion to strike Appellant’s, Ralich, petition to set aside the sheriff’s sale and to dismiss foreclosure proceedings, because the Appellant’s petitions were untimely and not excused by any exception.
Pursuant to Pennsylvania Rules of Civil Procedure 3135(a) and 3132, a party in interest must petition the court to set aside a sheriff’s sale within 20 days “after the filing of the schedule of distribution or the execution sale” and before the sheriff issues a sheriff’s deed. A court only excuses an untimely petition if the petitioner shows there was either fraud or lack of authority to make the sale.
Here, Appellant’s petition was untimely because it was filed three months after the sheriff issued a deed. Appellant claimed that the untimely petition should be excused because (1) “various procedural irregularities plagued the sale,” (2) there was fraud, and (3) MERS lacked authority to complete the sheriff’s sale. The Trial Court, with the Superior Court affirming, dismissed each of these claims, respectively, stating that (1) a sheriff’s sale cannot be set aside because of procedural deficiencies, (2) Appellant’s failed to state fraud with particularity, and (3) MERS had authority because the mortgage itself “vest(ed) MERS, as nominee, to enforce the loan.”
February 5, 2013 | Permalink | No Comments
Pennsylvania Bankruptcy Court Holds that Mortgage Servicer Lacks Standing to Make a Motion for Relief from Stay Placed on Mortgaged Property in a Bankruptcy Proceeding
In In re Michelin Alcide, 450 B.R. 526 (Bankr. E.D. Pa. 2011), the United States Bankruptcy Court for the Eastern District of Pennsylvania held that the mortgage loan servicer did not have standing to make a motion for relief from the automatic stay placed on the mortgaged property when debtor commenced a bankruptcy proceeding. In this case, Everhome Mortgage Company, the mortgage loan servicer for the Debtor’s mortgage holder, Everbank, filed a motion for relief from the automatic stay in order to foreclose on the debtor’s property. In response, the Debtor claimed that Everhome (1)”has not established it has the legal authority to enforce the Mortgage and therefore lacks standing” or, in the alternative, that Everhome (2) “is not a ‘party in interest’ or it is not the ‘real party in interest.’” The court agreed with the Debtor on both assertions.
In order for a party to file a motion for relief from the automatic stay, the burden is on the movant to prove that it has (1) some legally protected interest “that either has been adversely affected or that is in actual danger of being adversely affected,” and (2) the movant “must be asserting its own rights and not that of another entity,” meaning a “movant must have authority to enforce the mortgage under nonbankruptcy law.” Under Pennsylvania law, a mortgage loan holder or an assignee of the mortgage has the power to commence a foreclosure action and thus has the right to file a motion for relief from automatic stay. Conversely, a mortgage loan servicer may only file a motion for relief if it shows evidence that it has authority from the mortgage loan holder to initiate such proceeding on behalf of the mortgage loan holder.
Here, while Everbank did have a legally protected interest since it had a financial stake in the mortgage, it did not show it had authority form the mortgage loan holder to initiate a motion for relief from the stay on its behalf. A servicing agreement in which Everhome authorized Everbank to conduct mortgage foreclosure proceedings on its behalf would suffice, but no such servicing agreement was put into evidence. Thus, Everbank did not have standing and the court dismissed the motion without prejudice.
February 5, 2013 | Permalink | No Comments
California Court of Appeal Upheld Beneficiary’s Demurrer to Plaintiff’s First Amended Complaint
In Arnolds Mgmt. Corp. v. Eischen, 158 Cal. App. 3d 575, 205 Cal. Rptr. 15 (Ct. App. 1984), the California Second District Court of Appeal held that before Arnolds Management Corporation (AMC) could set aside a non-judicial foreclosure under a deed of trust because of irregularities in the sale, AMC must first tender the full amount owing on the senior obligation.
Hicks executed a promissory note secured by a first deed in favor of Safeco as trustee and Eischen as beneficiaries. Two years later, Hicks executed a second deed in favor of Reliable Reconveyance Corporation as trustee and all plaintiffs except AMC as beneficiaries. In 1982, Hicks defaulted under the first deed. But Safeco failed to give AMC statutory notice of sale so the sale was postponed. Later, Safeco incorrectly told AMC that the foreclosure sale would be on July 28, 1982, when instead the sale took place on May 27, 1982. As a result, Safeco conducted the foreclosure sale, the Eischens were the highest bidders, and AMC did not attend or participate. AMC, as junior lienors, wanted to set aside the non-judicial foreclosure sale under a senior lien based on the alleged defect in notice of the sale.
AMC claimed that the rule requiring a tender of the full obligation prior to suit is applicable only to trustor litigants and not to junior lienors who are not personally responsible for the senior obligation. The Court disagreed and held: 1) that a junior lienor, such as AMC, must allege tender of the senior obligation as an essential element of any cause of action based upon irregularities in the sale procedure. Otherwise, AMC could state a cause of action without the necessary element of damage to themselves. 2) AMC’s action must fail because their tender of payment was not an unconditional offer to pay all of the sums necessary to cure the default. AMC’s offered Eischens more favorable terms, but the Court held that their offer did not meet the amount due under the senior obligation. And finally, 3) AMC is not a real party in interest because it did not allege that it had an interest in the property or was a prospective bidder at the trustee’s sale prepared to pay the senior obligation. Thus, the Court ultimately held that AMC did not allege any facts which would allow it to maintain its action.
February 5, 2013 | Permalink | No Comments
United States District Court in California Holds that MERS “Assignee” Lacked Standing Because no Evidence Showed MERS held the Note
In Saxon Mortg. Services, Inc. v. Hillery, C-08-4357EMC, 2008 WL 5170180 (N.D. Cal. Dec. 9, 2008), the United States District Court, in the Northern District of California granted Hillery’s motion to dismiss because Saxon Mortgage Services, Inc., lacked standing.
Hillery obtained a loan from New Century Mortgage. A deed of trust for Hillery’s home secured repayment of the loan to New Century. Pursuant to the deed of trust, MERS was named as nominee for New Century, its successors, and was designated the beneficiary of the deed. Three days after obtaining the loan from New Century, Hillery tried to rescind the loan pursuant to the Truth in Lending Act (TILA). About a year later, Saxon, acting as the servicer for the loan, stated that it had received Hillery’s request to rescind. A year later, MERS, acting as nominee for New Century, assigned the deed of trust and promissory note to Consumer.
Saxon and Consumer brought suit against Hillery and Spielbauer Law Firm, asserting claims for declaratory relief pursuant to TILA. Hillery then filed a motion to dismiss claiming 1) insufficient service of process, 2) lack of subject matter jurisdiction, 3) lack of standing, 4) failure to state a claim for relief, and 5) failure to join an indispensable party.
Saxon provided proof of service, signed by a process server under penalty of perjury, supporting his assertion that substitute service was affected on Hillery. The Court acknowledged Hillery and her grandson’s declarations to the contrary, but held that those declarations were not enough to overcome the prima facie case established by Saxon. Additionally, the Court held that Saxon properly served the Spielbauer Law Firm because service was accomplished within 120 days of Saxon filing their complaint.
Hillery argued that a federal claim that is insubstantial cannot serve as the basis for federal question jurisdiction. Consumer claimed, however, that were Hillery to have filed suit first, her claims would have included allegations of TILA violations. Ultimately, the Court held that Hillery failed to demonstrate how Consumer’s TILA rescission claim would be insubstantial, since Hillerly threatened to bring a TILA rescission claim.
For Saxon to have standing, Consumer would also need to have standing. Thus on the issue of Consumer’s standing, the Court stated that there was evidence showing that the deed of trust was transferred to Consumer. New Century designated MERS as the beneficiary of the deed and gave MERS broad authority to act with respect to the property. Thus, the Court assumed that MERS had the power to assign the deed to Consumer and eventually did around June 20, 2008. But for there to be a valid assignment of the deed and the promissory note must be assigned. Here, there was no evidence establishing that MERS held the promissory note or was given authority by New Century to assign it. Thus, the Court held that Consumer did not have standing, and granted Hillery’s motion to dismiss without prejudice.
February 5, 2013 | Permalink | No Comments
Court in Rhode Island Rejects the Disconnection Theory
In Payette v. Mortgage Electronic Registration Systems, No. PC-2009-5875, 2011 WL 3794701 (R.I. Sup. August 22, 2011), the plaintiffs do not challenge the allegation they defaulted on the note, however they challenged both the foreclosure sale and the title acquired by the buyer from the sale.
The court first determined whether a conversion of the motion for judgment on the pleadings was proper. Conversion of the motion for a judgment on the pleadings into a motion for summary judgment without expressly notifying the parties is permissible in Rhode Island. However, this requires notice that a conversion may occur. The court found that inviting a conversion qualifies as notice. In addition, the court found that the current case, which lasted two years, is longer than the ten month period that was found sufficient to justify converting a motion without previously notifying the parties.
The court stated that exhibits were attached to the motion for judgment on the pleadings. Evidence outside of the pleadings are not relevant to the judgment. As a result, if the “matters outside the pleadings are presented to and not excluded by the court, the motion “shall be treated as one for summary judgment.” Super. R. Civ. P. 12(c).
The plaintiff challenged previous assignments of the mortgage under the mortgage agreement and under Rhode Island’s statutes, allegedly resulting in the illegal foreclosure sale. However, the court adopted the reasoning in both Porter, which was recently decided, and Bucci. As a result, the court found that the assignments were proper under both the mortgage agreement (due to clear language granting the authority to MERS) and the statute (rejecting the plaintiff’s narrow statutory interpretation).
The court notes that in this case, MERS assigned its nominee status and mortgage interest to another party, which is different from the two cases. However, the court found the language to mortgage, grant, and convey [the property] to MERS … and to the successors and assigns of MERS’” clearly indicates that the MERS had the ability to assign the rights. In addition, the plaintiff gave MERS the authority to assign the rights in another provision of the agreement granting the “right to exercise any and all of [the lender’s] interests, including… [the right] to take any action required of Lender including, but not limited to, releasing this Security Instrument.”
A third argument by plaintiff is based on agency law, alleging a bankruptcy terminated the relationship between MERS and the original Lender. However, the court relied on Porter to reject the claim that the bankruptcy can negate the contractual agreement. The court found that MERS’ right to act as nominee for the Lender and for the Lender’s “successors and assigns” clearly maintains the relationship regardless of the state of the Lender.
The court next addressed a claim that the initial assignment of the Mortgage to MERS “disconnected” the note and mortgage, leaving both obligations invalid at their inception. This is very similar to the split note theory. However, the court relies on the “voluminous and well-reasoned authority” of other jurisdictions that rejected this theory to do the same. Additionally, the court notes that the analysis in Porter and Bucci presupposed that an assignment of the mortgage to MERS was valid. The court also found the mortgage and note were “clearly reunited” when both documents were transferred to the foreclosing party.
Finally the court addressed a challenge to MERS based on alleged misconduct of handling the plaintiff’s mortgage. However, the court found the plaintiffs lacked standing to challenge mortgage assignments and their effects. The court again relied on the reasoning of other jurisdictions that the court found persuasive. The court found the plaintiff’s allegations of misconduct by MERS (namely alleging their mortgage was robosigned) were not supported by evidence.
Ultimately, the court granted summary judgment for the defendants.
February 5, 2013 | Permalink | No Comments
Ohio Court of Appeals Holds that MERS, as Mortgagee, has Standing to Foreclose Despite Lacking a Beneficial Interest in the Note
In Mtge. Electronic Registration Sys., Inc., v. Mosley, 2010-Ohio-2886, the Court of Appeals of Ohio held that MERS had standing to foreclose on the homeowners. The court found that language in the mortgage naming MERS as nominee, as well as a provision explicitly giving MERS the right to foreclose on the property, was sufficient to give MERS standing to foreclose. The court was not persuaded by the argument that MERS lacked standing because MERS did not have a beneficial interest in the underlying note. In response to this argument, the court stated, “The fact that MERS, the mortgagee, lacked a beneficial interest in the note that was secured by the mortgage does not deprive MERS of standing to enforce the note and foreclose the mortgage. . . . MERS has always been the mortgagee and [thus] has had a contractual right to foreclose on the Mortgage.”
February 5, 2013 | Permalink | No Comments
