February 6, 2013
California Court of Appeals Affirmed Trial Court’s Decision Granting MERS Authority to Initiate Foreclosure Proceeding
In Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149, 121 Cal. Rptr. 3d 819 (2011), the California Court of Appeals in the Fourth District held that there was no legal authority which required the Court to entertain a borrower’s cause of action.
Gomes borrowed $331,000 from lender KB Home Mortgage Company to purchase real estate. Gomes executed a promissory note which was secured by a deed of trust. The deed identifies MERS as a nominee for the lender and a beneficiary under the security instrument. The deed that Gomes signed states that Gomes “understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS has the right: to exercise any or all of those interest, including, but not limited to, the right to foreclose and sell the Property…” Gomes eventually defaulted on his loan payments, was mailed a notice of default, and was mailed an election to sell which initiated a non-judicial foreclosure process. Gomes subsequently filed a lawsuit against Countrywide (loan servicer), MERS, and ReconTrust.
On appeal, Gomes argued that MERS did not have authority to initiate the foreclosure because the current owner of the Note did not authorize MERS to do so. Gomes sought damages in an amount not less than $25,000. Gomes also argues that Civil Code § 2924(a)—allowing borrower, before his property is sold, to bring a civil action to see whether person electing to sell the property is authorized to do so—provides the legal authority for Gomes to assert the claim he made in his first cause of action. Countrywide demurred Gomes’s first and second cause of action.
The Court held that Gomes failed to identify a legal authority for his lawsuit. Nothing in Civil Code §2924—which sets out California’s non-judicial foreclosure scheme—suggests that a judicial proceeding is permitted or even contemplated. There is nowhere in the statute that provides for judicial action to determine whether the person initiating the foreclosure is indeed authorized, and the Court saw no ground for implying such an action. The Court was worried that if they recognized the right to bring a lawsuit in order to determine a nominee’s authorization to proceed with a foreclosure on behalf of the note-holder, the non-judicial nature of the process would be undermined and introduce the possibility of lawsuits filed solely to delay valid foreclosures. Gomes further argues that the Legislature may not have had time to fully respond to this type of situation, but the Court advised Gomes to address his arguments to the Legislature, not the courts.
Nevertheless, even if there was a legal basis to determine whether MERS had the authority to initiate the foreclosure proceeding, Gomes’ claim would still lack merit; Gomes agreed, by executing the deed, that MERS has the authority to initiate a foreclosure as per the provisions of the deed. Finally, because Gomes conceded that he has no specific information about assignments of the note, he would be unable to plead on information and belief, based on facts leading him to believe they were true, a specific theory that would warrant amending his complaint. Accordingly, the Court concluded that the trial court properly sustained Countrywide’s demurrer without leave to amend.
February 6, 2013 | Permalink | No Comments
Oregon District Court Holds MERS Lacks Standing Because Not All Mortgage Assignments were Recorded
In Burgett v. Mortgage Elec. Registration Sys., Inc., 09-6244-HO, 2010 WL 4282105 (D. Or. Oct. 20, 2010), the Oregon District Court granted MERS’s motion for summary judgment in regards to Burgett’s Real Estate Settlement Procedures Act (RESPA) claim, and denied MERS motion in regards to Burgett’s claim for declaratory relief and breach of contract.
Burgett brought action against MERS and Aurora Loan Services, LLC alleging predatory lending with respect to the refinancing of Burgett’s home mortgage. Burgett entered into a loan agreement in March 2007, to refinance his home mortgage. MERS was listed on the Deed of Trust as the beneficiary. In April 2009, MERS executed an instrument entitled Substitution of Trustee under which Defendant Cal Western Reconveyance Corporation was appointed trustee under the deed of trust. Cal Western Reconveyance recorded on April 29, 2009. On April 28, 2009, Cal Western Reconveyance executed a notice of default and election to sell, and trustee’s notice of sale for September 3, 2009. Burgett brought this action on September 9, 2009, before a foreclosure sale could occur.
Burgett claimed MERS violated: 1) the Truth in Lending Act (TILA), 2) RESPA, 3) the Oregon Mortgage Broker Act, and claimed breach of contract. MERS motioned for summary judgment. At the outset, Burgett withdrew his TILA claim. Accordingly the Court dismissed Burgett’s TILA claim.
Next, Burgett claimed that MERS violated RESPA because it failed to properly respond to his written inquiries regarding his loan. At oral arguments, Burgett conceded that there were no pecuniary damages incurred as a result of the violation and that he only sought statutory damages. The Court stated that Burgett had to allege a breach of RESPA duties and that the breach resulted in actual damages, in order to survive summary judgment. Since Burgett failed to do so, the Court granted MERS summary judgment on this claim.
Burgett further contended that under the Oregon Trust Deed Act, MERS and Cal Western could not foreclose on his property because MERS was not a “beneficiary” under the Act. Under Oregon law, a beneficiary means “the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given . . . .” Here, the trust deed specifically designated MERS as the beneficiary.
The Court noted, however, that MERS failed to record assignments necessary for foreclosure. Under Oregon Law, if foreclosure by sale is pursued, all prior unrecorded assignments must be filed in connection with the foreclosure. Here the record did not demonstrate that all the transfers had been recorded. As a result, the Court denied MERS’s motion for summary judgment with respect to Burgett’s claims for declaratory relief and breach of contract.
February 6, 2013 | Permalink | No Comments
Massachusetts Superior Court Holds that Assignee of Residential Mortgage Backed Securities has Standing to Seek Statutory Damages
In Cambridge Place Inv. Mgmt., Inc. v. Morgan Stanley & Co., No. 10-2741-BLS1, 2012 WL 5351233, at *20 (Mass. Super. Ct. Suffolk Co. Sept. 28, 2012), the Superior Court of Massachusetts held that Cambridge Place Investment Management, Inc. (CPIM), as assignee of residential mortgage backed securities, had standing to seek damages under the Massachusetts Uniform Securities Act (MUSA) that resulted from alleged false and/or misleading statements made by the “underwriters, dealers, and depositors of the securities at issue.” In this case, the assignor of the securities was a group of nine hedge funds that had received advice from CPIM to purchase the securities at issue. The securities turned out to produce “substantial losses” for the hedge funds. In order to recoup their losses, CPIM further advised the hedge funds to assign the securities to it, so that it could bring an action in Massachusetts state court.
The underwriters, dealers, and depositors of the securities (Morgan Stanley) argued that CPIM lacked standing for three reasons: “First, [Morgan Stanley] contend[s] that the assignments of claims were done for an “improper purpose”—to collusively destroy federal diversity jurisdiction. . . . Second, [Morgan Stanely] argue[s] that the remedies under MUSA are only available to the direct purchaser of the securities, and, as assignee, CPIM lacks privity with [Morgan Stanely]. . . . Third, [Morgan Stanley] assert[s] that CPIM lacks standing to seek the rescission of the securities because rescission is a personal right that is not assignable.” The court addressed these arguments, rejecting each in turn.
The court held that the first argument must be rejected because “[e]ven if the assignments were made collusively to destroy federal diversity jurisdiction, that, in itself, does not invalidate them. . . . [T]hat the assignments were improperly made to CPIM only affects their validity under federal jurisdictional law, and do not affect their validity under state law.” The court found that for this argument to be accepted, Morgan Stanley needed to show “additional facts to invalidate the assignments under state law.”
The court then rejected Morgan Stanley’s second argument. In doing so, it characterized CPIM as an investment advisor, and applied a functional test “based on the decision-making authority that the investment advisor possessed.” Quoting a Massachusetts district court case, the court stated the test as follows: “as long as the investment advisor has discretion in determining what securities to buy and sell, it qualifies as a purchaser with standing to bring a securities fraud action.” The court then found that CPIM sufficiently alleged that it had discretion in determining what securities to buy and sell.
The court finally rejected Morgan Stanley’s final argument, stating, “The court is unwilling to conclude that CPIM’s claim is ‘personal’ and not subject to assignment. . . . Accordingly, CPIM is entitled to assert all available statutory remedies, including rescission.”
February 6, 2013 | Permalink | No Comments
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
Dodd-Frank Solutions to Protect Against Wrongful Foreclosures
By Gloria Liu
Christopher Seide wrote an article titled “Consumer Financial Protection Post Dodd-Frank: Solutions to Protect Consumers Against Wrongful Foreclosure Practices and Predatory Subprime Auto Lending” for the University of Puerto Rico’s Business Law Journal, summarizing the various solutions Dodd-Frank offers to the average homeowner consumer.
Of particular note is his criticism of the solutions offered in Dodd-Frank and the reasons for their inefficacy.
The article can be found here: https://www.uprblj.com/wp/wp-content/uploads/2012/06/3.2-UPRBLJ-219-Chris-Seide-DoddFrank-06-01-2012.pdf
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February 6, 2013 | Permalink | No Comments